Why leasing a factory is more cost effective.
The biggest point to make here is Leasing a manufacturing facility leaves your company with more capital to invest in machinery to make what you manufacture. Why tie up your precious capital to buy a factory when you can lease a facility? Here is an article on why leasing a factory is more cost effective.
There are many factors every business need to consider when getting ready to make the decision whether to buy or rent or lease a factory or manufacturing facility. Once a business determines its manufacturing facility needs and locates the right facility, it is time for yet another decision regarding the business property: Do you buy, rent or lease a factory?
This question is raised in two contexts; first the owner of the target property will have to consider, either a capital lease or a straight rental of the property. And secondly you have to check what makes more financial sense – do we need to buy or can we just lease a factory. To help you make this decision, you need to compare the economics – what will this look like on our balance sheet? What is 10 or 20 years down the road we need to relocate – will it take 3, 4 or 5 years to dissolve of this property.
There is always a debacle when somebody considers the option of buying as compared to leasing a manufacturing facility. Some people may hesitate from leasing because of building potential equity. However, a competent financial analyst can confirm that leasing is a far more cost effective way of operating a business.
The main advantage of leasing a manufacturing facility or factory is that your initial outlay of cash to gain the use of the property is generally less for leasing than it is for purchasing. You should also look at the trade offs of both options, which are generally less for leasing as compared to those of buying. Apart from this if you want the facility for a short period of time – such as less than 20 years then leasing is by far the best option over purchasing.
There are multiple factors that would imply that leasing is a superior option as compared to an outright purchase. For assets with a shorter life, for example, it would be wiser to keep a lease on as opposed to a buyout. If you would like to buy equipment in bulk for your business or organization, it could create an extra pressure on the future financing of the company. Again, leasing can be utilized to create smaller payments every month, even on a monthly, quarterly, or yearly basis. Leaving your company more capital to invest in machinery to make what you manufacture.
When you keep all this in mind, if you are considering to lease or rent industrial space or a manufacturing facility for building your business, it makes more sense, both financially and economically, to go for an option that gives you more flexibility and more cash flow to breathe.