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Hire or buy? Solving the commercial equipment dilemma

By: Grant King - IndustrySearch Writer
13 April, 2015

Whether you run a long established company or you're building a new one from the ground up, there's the same recurring question: 'Should I buy it or hire it?'

If you're human, and there's every chance you are, your heart will say buy while your head will say hire. Both can be right as each piece of equipment has to be judged on a case by case basis, the parameters varying for each. Here then is the case of Buying versus Hiring.

The case for buying

For one it's that old status thing; the prestige. If you own it, it's yours and you can say it's yours. Whether for home or business, possessions are possessions and a good many of us covet them.

However, the key to good buying decisions is to take emotion right out of the equation. Make it about the maths and consider this as your first deduction: tax. Buy outright and you can write off all or most of the purchase price as a tax deduction.

Hire and your tax write-off will be considerably lower, though you will pay less upfront. Buy and you have total control. It's yours forever. No need to return it and then get in the queue to get it back.

The case against buying

Yes, you own it and yes, you get to keep it forever. But how much fun is that going to be when newer models have rendered your prized possession the technological equivalent of a square wheel?

You've paid top dollar for something you can't even give away let alone sell to an eccentric collector on eBay. So weigh it up. Is the equipment in question subject to monumental shifts and advancements? Is it guilty of wilful depreciation on a grand scale? And will it torment you with ongoing maintenance and repair costs you could have avoided or minimised if you hadn't effectively married yourself to it?  

The case for hiring

At the current technological rate of knots, purchased equipment, and particularly computers, is out of date the moment you remove it from its packaging. A leased computer can usually be upgraded within the terms of your contract, not a bad thing if you need to be at the cutting edge to stay competitive. If you're short of cash or just loathe to throw much money into equipment, you'll pay a lot less upfront by hiring.

The case against hiring

Beware that low outlay icing, as it may ultimately be beautifying a very expensive cake. Sure, you're only paying for one small slice at a time, not the whole thing, but if you keep it long enough, you may end up paying for two cakes, or even three without owning any of them.

Another big consideration is availability. Will that equipment be there precisely when you need it? And what if it's not? If it's a generator and your entire operation is in darkness, that can be more than just annoying, it can be catastrophic. Finally, hired equipment will generally be a major disappointment come tax time as only a small percentage of your outlay can be recouped.

Summary

Some equipment – the things you use all day, every day or need at a moment's notice – should, as a general rule, be bought. Unless they're computers and you can't afford to be carrying outdated equipment in a year.

Some equipment – for one-off jobs or where keeping pace with technology is a big factor – should be hired. Both buying and hiring are guilty of financial misdemeanours – the former in its upfront cost, the latter in its long term cost without ever being able to call it your own (though some leases do have this option). Consider your available cash. Can you afford to buy or can you only afford to hire?

As you can see, the case for either is far from clear cut. Case by case, item by item do the maths, compare and compare again. With a bit of luck your purchases will be assets and your liabilities won't be crippling leases.

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