23 Jan Is It Better to Buy or Lease A Van For Your Business?
The benefits of leasing a van as opposed to purchasing it are often unclear to new business owners. Often, businesses choose to purchase the vehicle as they perceive that it is an essential part of their business and thus should be owned by them. Furthermore, they may justify that in terms of nominal cash flows, van ownership costs less than commercial van rental Singapore in the long run. However, leasing does provide the business with several other benefits, some of which are less intuitive and are covered in this article.
For a new business that does not have consistent demand, financial liquidity is key. Without cash, the firm may find itself running into all sorts of financing issues. Splurging cash on a van purchase may place your firm into dangerous territory, especially if unforeseen circumstances pop up. In direct contrast, since lease loans require lower up-front costs, you enjoy the benefit of retaining capital within the firm.
Building on the importance of retaining liquidity, you should question yourself if ownership of a van is an absolute need at the moment. The resulting liabilities incurred as a result of attainment of large assets can be detrimental to your firm, especially if it does not have high levels of existing capital. Since leasing loans are paid for per period, it is easier to forecast and achieve a more consistent pool of funds which may act as buffer in the event of unforeseen events.
New businesses tend to be hit by larger demand surges and shrinkages, thus creating uneven revenue streams. Where a large capital asset investment such as a van purchase is made, the risks are increased exponentially as regular instalments still need to be paid. In this aspect, the benefits of vehicle rental Singapore is easily understood as you may negotiate to rent the right vehicle for the appropriate periods. In doing so, you won’t be paying for excess capacity or incurring the opportunity cost of not being able to meet increased demand.
Deterioration of Property
Another thing that you need to consider is the fact that assets in every company are always subject to depreciation. This depreciation is reflected on the balance sheet of the firm and represents the foreseeable wear and tear on the asset over time. For example, if you purchased an automobile today, its value will no longer be the same for the next year. In certain cases, the depreciation rate may be higher than that of inflation. The depreciation must be recognized every year, thus lowering the value of your assets.