Topic 7 DQ 2

In our family-owned small catering business, leasing has proven to offer several advantages when compared to the outright purchase of assets. Personally, I've found that one of the most significant benefits of leasing is the preservation of our precious capital. In our industry, capital is essential for various purposes, like expanding our menu offerings, investing in marketing campaigns, or dealing with unexpected expenses. In my view, there is a potential drawback when it comes to the cost difference. Leasing equipment over the long term provides the advantage of not being locked into ownership, which can offer flexibility. However, it's essential to consider that in the long run, you might end up paying more in rental fees than if you had chosen to purchase the equipment outright[ CITATION Fun23 \l 1033 ]. This cost disparity is a crucial factor to weigh when making decisions about equipment acquisition, especially in a business or financial context. For instance, rather than shelling out a hefty $10,000 upfront to buy a commercial oven, we've opted to lease it, resulting in manageable monthly payments. This strategic move has allowed us to maintain our capital for other critical investments. Furthermore, leasing provides us with much-needed flexibility. As our catering business has grown, we've occasionally wanted to upgrade our equipment to keep up with the latest industry standards. Leasing facilitates these transitions seamlessly, sparing us the financial hassle of selling and repurchasing assets. On the financial side of things, lease payments are often a tax-deductible operational expense. For example, we lease a high-capacity dishwasher for our kitchen operations, and we can deduct those monthly lease payments from our annual taxable income. This translates to a reduction in our overall tax liability, a benefit we greatly appreciate. Additionally, some of our lease agreements include maintenance and repair services. This arrangement has been a real lifesaver at times, sparing us the hassle and costs associated with keeping our equipment in working order. Lastly, from a financial reporting perspective, leased assets typically do not appear on our balance sheet. This means we don't have to contend with the depreciation that affects our financial ratios when we purchase equipment. This aspect has been particularly advantageous when presenting our financial standing to potential investors or lenders, as it showcases a more favorable financial picture. References Funding Circle. (2023, August 31). The Small Business Owner's Guide to Equipment Financing . Retrieved from FundingCircle: financing-guide/
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