SBA: Manage your business

Business assets fall into three broad categories: tangible, intangible, and intellectual property. Depending on the asset type, you’ll have to decide whether you want to buy or lease assets for your business. The first step is figuring out which assets will help your business succeed. Tangible assets Things like buildings, vehicles, and equipment are used for regular business activity and lose value over time. Things like printer paper, which get used up, typically don’t get counted as assets. When managing your finances , you can count tangible assets on your balance sheet as property or equipment. Intangible assets Your business reputation, brand, or business partner’s influential network are intangible assets or things you can’t touch. You don’t list these on your balance sheet, and it’s often difficult or impossible to sell them for cash. But they can still contribute to the overall value of your business. Intellectual property A type of intangible asset that includes trademarks, patents, logos, websites, domain names, and software. Intellectual property is often protected by copyright or trademark protection. Decide to lease or buy + Once you’ve determined all the assets you need for your business, you can decide how you’d like to acquire them. Lease Leasing can be a good option if you need to quickly get a lot of equipment, or if the equipment you need is very expensive. Commercial space can also be leased, so you can rent a place to run your business. In some cases, leasing can actually be less expensive than purchasing with a high-interest loan. Leasing benefits: Needs less cash or credit upfront Short-term leases let you test out the equipment Maintenance is sometimes included at no extra cost Lease payments for business assets are typically tax deductible Leasing disadvantages: The lifetime cost is normally higher than buying Replacing it when the lease is up could be expensive Depreciation of leased assets typically isn’t tax deductible Every lease can be structured differently, so look into the details of your offer to make sure you’re getting something that works for you. Confirm the details of a lease There are two general kinds of leases, operating and capital. Since the accounting treatment is different, the kind of lease you use can have a significant impact on your business taxes. Operating lease Works like a traditional rental; Does not get added to your balance sheet; Payments are operational expenses; Low maintenance, risk, or tax obligations Capital lease Works more like a loan; You own the asset for accounting purposes; Added to your balance sheet; Claim depreciation and interest expenses; Take on all maintenance, risk, and tax obligations There are other factors to look at, too. Leases sometimes have buyout options that let you fully purchase the asset at the end of the lease. The length of a lease can vary, and shorter leases typically have higher monthly payments. If you want to leave a lease early, you could face steep early-termination penalties. You might want to ask an attorney to review a lease with you before signing, especially if any of the terms or conditions are unclear. Buy Buying equipment can be a good option if you have enough cash or credit available and you’re confident you’ll be using the assets for a long time.