Almost every growing business faces the same question: do we buy the vehicle or machine, or do we lease it? The sales brochure will say one thing and the bank another. The honest answer depends on cost, cash, how long you will use the asset and how it is treated for tax. You can decide it with simple arithmetic.

What each option means

When you buy, you own the asset. You may pay cash or take a loan, you carry the costs of repairs and insurance and you can sell it at the end. When you lease, you pay a regular fee to use the asset for a fixed period and you return it at the end or buy it at a set price. Some leases include maintenance, others do not.

Compare the total cost

The monthly payment is not the full picture. For buying, add the deposit, the loan repayments, the running costs and then subtract what you expect to sell the asset for. For leasing, add the lease payments and any running costs not included. Compare the totals over the same period. The lease vs buy decision calculator does the sums year by year, and shows the cumulative cost of each option and which one is cheaper so far.

Be realistic about resale value

Resale value can change the answer completely. A vehicle that holds its value may be much cheaper to buy, while equipment that becomes obsolete quickly may be better leased. Use a cautious figure, based on what similar items actually sell for, not on the seller's hopes.

Look at cash flow

A lease often needs little or no deposit, so it protects your cash for stock and wages. Buying needs more cash upfront but costs less overall if you keep the asset for years. Check both against your forecast. The 12-month cash flow forecast shows whether the monthly payments fit during your slowest months, and cash flow forecast for a small business explains how to build it.

Think about the length of use

If you will use the asset for most of its life, buying is usually cheaper. If you need it for a short project or expect your needs to change, a lease gives flexibility. Long leases with heavy penalties for ending early can be worse than they look, so read the exit terms.

The tax treatment

Tax is a major difference. When you buy a qualifying asset, you may claim capital allowances over time rather than deducting the whole price at once; see fixed assets and capital allowances explained and capital allowances now straight-line: what changed. Test the effect with the capital allowances calculator. Lease payments are usually deducted as an expense when paid, but the rules differ for finance leases and for vehicles, so ask your accountant. Some investments in buildings and machinery qualify for extra deductions; the investment deduction calculator shows the effect. Loan interest is treated as described in borrowing for your business.

Do not forget VAT

Check whether VAT on the purchase or the lease payments can be claimed back. For vehicles, claims are restricted in many cases. Read the invoice terms, and see VAT for small businesses.

Track your assets

If you buy, record the asset, its cost, its date of purchase and its depreciation. The fixed asset register with depreciation keeps this tidy, and the equipment maintenance schedule and log helps you service it on time, which protects its resale value.

A simple decision process

  1. List the options and the period you will use the asset.
  2. Calculate the total cost of each, after resale value.
  3. Check the monthly cash effect against your forecast.
  4. Consider the tax treatment with your accountant.
  5. Choose the option that costs least without threatening your cash flow.

Sometimes the cheapest option is not the right one, because a business short of cash may be better off leasing and keeping its money for growth. Do the numbers, decide deliberately and revisit the choice when the term ends.

Questions to ask the seller or lessor

Ask what is included in the price, who pays for repairs, what happens if the asset is damaged or stolen, whether there are mileage or usage limits, and what it costs to end the agreement early. Ask for the quotation in writing and compare at least two offers. A clear answer to each question prevents unpleasant surprises in the second year.