Is Leasing A Business For You?

March, 23 2014

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I have friends who love to lease cars. They love the new car smell every three years. They love the variety of getting behind the wheel of a different car. But I’m not sure leasing is for me.

I recently received a proposal to lease a small business. The pitch went like this: “Do you want to own your own business but don’t have a great idea or the funds to start up?” Interesting right? I’m not sure I could lease a business I didn’t know anything about, but there are a lot of people I know who want to be business owners and don’t know where to start. Could this be the solution?

It got me thinking about what the bookkeeping and accounting implications could be of leasing a business. Here are some things you should consider no matter if you plan to sell, buy or lease a business:

LESS OUT OF POCKET CASH – When you lease, rather than  buy a business, you usually don’t need to invest as much money upfront. Buying a business might require putting a large down payment to buy a property, then there are loan fees, building inspections and other costs associated with a large purchase, which could add up to $200,000. If you’re just leasing a business, the monthly cost varies, but is generally in the thousands, rather than hundreds of thousands of dollars .

BUSINESS VALUE – Whether you plan to buy, sell or lease a business, there are certain questions you should ask to determine the value of the business. Is this business generating positive cash flow consistently? Is capital growing or slowing? Is the business dependent on existing customer relationships or operating know how? The answers to these questions will help you determine whether the business is a sound investment.

LEASE AGREEMENT – Just what does leasing a business include? Does the monthly rent include things like: rent, bills and inventory. If it’s a business you’re not familiar with, make sure the owners include training. Buying a business without the proper training is a bad business practice. Know what’s included before you sign an agreement.

TAX IMPLICATIONS – When you lease a car for business purposes, your lease payments can be written off as a business expense. But leasing a business is pretty unchartered territory, so before you lease a business, make sure to consult with an attorney about corporation status and what the tax implications will be.

ACCOUNTING BASICS – If you go ahead with the deal, find out if the business that you plan to lease has an accounting system, processes and controls in place already. If so, ask to see the books before you dive into a new business. If the numbers don’t add up, you may be in for an uphill battle.

As an entrepreneur and small business owner, I can tell you first hand that being your own boss is great! I think I work harder now than I ever have, but the rewards pay off in the end.

What do you think about the idea of leasing a business? Would you try it, if it was a sound investment? Would you lease if you had no experience in that specific field? Yes or No and Why? I want to hear from you.