The sensible option for many smaller businesses is to rent their required products or services at a cheaper price. This makes perfect sense as a short term solution and is a widely used practice across the UK. On the other hand there are also advantages for owning all aspects of your business outright, not least the stability it brings, rather than renting on a temporary basis.
Here is a list of some pros and cons for renting products and services for a small business:
Pros
- The most obvious advantage for renting is the cheaper costs incurred. Start-up companies can use the saved money to invest in different parts of the business, whilst a potentially lean period can be overcome with less financial stress also. In addition, rental payments are usually offered at a fixed rate – this means you can plan your outgoings and not worry about fluctuating interest rates in the future.
- Small businesses need to remain efficient in their spending or they can quickly fall into trouble. For example, performing an accounting audit should only require a one-off service fee and not draw your business into a lengthy contract. DLR Accountants are one company who provide affordable fixed fee accounting services with no long term risk involved.
- There’s no better way to evaluate a product than using it first-hand, another advantage of renting. It allows you to check out the item or service at a reduced cost, usually just a deposit and one-period payment, and assess its worth to the company before you potentially invest in it.
- Depending on the industry you’re in, the freedom of renting allows your business to keep up with market trends much easier. You can cut short temporary rental arrangements with relative ease if a more suitable or cheaper product becomes available.
- There are some potential tax benefits for leasing equipment also; the cost of renting is calculated as a business expense thus reducing the overall tax bill. Also bear in mind that rental payments are 100% deductible against tax, whereas for cash purchases this figure could be only 25% in the first year.
Cons
- If the product or service is intended as a permanent fixture of your business model it makes more sense to make the purchase straight up; paying in weekly or monthly installments will often end up being more expensive in the long run. Also consider if the item could potentially appreciate in value on the future, it would be financially astute to buy immediately if this is the case.
- The product is not owned by you or the company if renting. Not only does this mean your business lacks valuable assets to add to its worth, it also presents a less professional appearance.
- If a rented item is damaged or broken under your supervision, the business will be held responsible. This will no doubt incur charges as per the terms and conditions, thus nullifying the advantage of renting in the first place.
- Some rental agreements include small print stipulations that can have detrimental effects in the long run. Be careful of contracts which lock your business into uncompromising and inflexible agreements. If something goes wrong with the product you may still be charged until the lease is completed.
