Should you rent or buy?

Daily Trust - - BUSINESS -

Know­ing that some­thing be­longs to you is a good feel­ing. When it comes to equip­ment, a typ­i­cal busi­ness owner would rather own than rent. While there is noth­ing wrong with own­ing all your equip­ment, you may be dig­ging your­self into a fi­nan­cial hole in the process.

As an in­di­vid­ual and busi­ness owner, it is im­por­tant that you un­der­stand the mean­ing of as­sets and li­a­bil­i­ties, good debt and bad debt, good ex­pen­di­ture and bad ex­pen­di­ture all from the con­text of cash flow.

Cash flow is the life blood of ev­ery busi­ness. The mo­ment you run out of cash, you are about to run out of busi­ness no mat­ter what your ac­coun­tant says. An as­set gen­er­ates a net positive cash flow while a li­a­bil­ity gen­er­ates a net positive cash flow. It is the di­rec­tion of cash flow that de­ter­mines if the item is an as­set or li­a­bil­ity. The same goes with debt and ex­pen­di­ture. A good debt/ ex­pen­di­ture gen­er­ates a net positive cash flow while bad debt/ex­pen­di­ture does the op­po­site.

If the equip­ment pays for it­self, own­ing it puts you in a bet­ter fi­nan­cial po­si­tion. If you have to sub­si­dize the equip­ment, own­er­ship of that equip­ment is drain­ing you fi­nan­cially. You need to know when it makes sense to own it or keep rent­ing for the time be­ing. If your busi­ness is mov­ing in the right di­rec­tion, you will even­tu­ally af­ford to own any equip­ment you need. There is no need to be in a hurry.

UsiereUko is author of Prac­ti­cal Steps to Fi­nan­cial Free­dom & In­de­pen­dence and can be reached at usiere@gmail.com, www.fi­nan­cial­free­domin­spi­ra­tion. com

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