Should you rent or buy?

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 subsidise 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.

Usiere Uko is author of Practical Steps to Financial Freedom & Independence

and can be reached at usiere@gmail.com, www. financialfreedominspiration.

com