The decision whether to lease or buy the equipment is often difficult for business owners.  This is solved through a cash flow analysis.  The analysis can be performed by a part-time CFO and takes several different factors into account including interest rates of the leases and the equipment if financed, useful life, maintenance and repairs, time value of money, and the salvage value of purchased equipment. 

In addition to the cash flow analysis, the business owner needs to consider:

1. Age of used equipment – How old is the equipment and does the output from the  equipment still meet good quality standards?  In essence, is the equipment  obsolete? What is the projected useful life of this equipment? 

2. Repairs – Is the equipment susceptible to breakdowns, big repair, and maintenance bills? What are the typical repair and maintenance costs for this type of equipment?  If high, then buying used could be too much of a risk.  Are you getting any warranties with the used equipment? 

3. Productivity – Is the equipment still meeting efficient productivity standards?  How long do you project the equipment will generate that efficient productivity? 

The cost to purchase or lease equipment is a major capital expense and an untimely purchase or lease can cause cash flow problems.  The kicker: it can literally put you out of business.  There must be an analysis on equipment performance for both quality of output and for production efficiencies.  In addition an analysis of the repair and maintenance costs of the equipment must be made.  Once these analyses are complete, the cash flow analysis can begin.  Then the risk of the equipment can then be assessed as to whether or not to buy or lease equipment.