CFO Approach to Purchasing Decisions

CFO Approach to Purchasing Decisions
CFO Approach to Purchasing Decisions

Leasing versus buying

As a functional manager, you may have to make decisions about whether to lease or buy equipment. Approaching the decision like a CFO will help you consider all of your options and make the best choice — especially since each option, leasing or buying, has advantages and disadvantages.

Leasing

A lease can be viewed as an expense. Every lease payment goes through the accounting system and is counted against company profits.

The main advantage is that a company doesn’t have to worry about reselling or disposing of old equipment when a lease is up. As a disadvantage, at the end of a lease a company won’t own the item, even though it may have paid the purchase price over the term of the lease.

For example, if you lease a copier, you have the option to trade up to a newer model when the lease expires.

Buying

A purchase is viewed as a fixed asset and depreciates over time. So the value of the purchased item may be expensed over a longer period of time than a lease if the item is financed.

Owning the equipment means that in the future, the company may be able to sell the item and recoup some of the cash paid out to buy it. However, if purchased outright, the expense of the company’s purchase will be immediate.

For example, if you purchase a copier and then a newer model becomes available, you can sell the old copier at its current value. Then you can use those funds however you choose.

Read more on Medium.com

By successdotinc

Information for success