If you are a small business that is planning to grow, you have to be able to make solid decisions about how to expand your capacity. And while there are many different aspects to consider, one of the major issues associated with the growth of successful businesses is the cost of fixed assets.
In particular, you can choose to buy fixed assets, or you can choose to lease them. There are a few different costs associated with these two approaches, so we’ll consider them both.
Expenses Related To Fixed Assets: When buying fixed assets, it may be a good idea to make a checklist of expenses to anticipate all of your outlays. Typical examples of these expenses may include:
1) Repairs and Maintenance
a) Scheduled – Protective maintenance to keep your assets in working order
b) Unscheduled – Repairs for damaged or broken equipment
2) Property Taxes
a) Due semiannually
b) Due annually
a) Three-year policy paid in advance
b) Three-year policy paid annually
c) One-year policy paid annually, semiannually, quarterly, or monthly
Expenses Related To Leased Assets: The costs of leased assets are usually easier to predict because they are usually regular, fixed payments. Again, it’s good to make a checklist of expected payments for the purpose of comparison. Typical examples of leased asset expenses are:
- Lease Payments
- Repairs and Maintenance
- Usage Charges
One advantage of leasing fixed assets is that it does not tie up your cash for a long period of time. In fact, many small businesses sell property and lease it back to free up cash.
If you need more advice on how to project costs and other cash flow issues in your business, contact Larry Marietta CPA at 317-216-1040.