Buy Or Rent? Sourcing What Your Business Really Needs
When you start your own business, there are a lot of costs involved. Some purchases are obvious and unavoidable: you will almost definitely need a computer, plenty of stationery and a website. However, there are plenty of items on your list that you could either buy or rent.
Deciding what your business needs and how to get it is crucial, especially at the beginning when money is tight. For example, you might see semi trucks for sale that would be perfect for the logistical side of your business but are you ready to take on this investment?
Here are 2 things you must consider when you decide whether to rent or buy.
Long Term Investment vs Short Term Cost
Investing in your business is always a balance between the long term investments you make and the upfront cost. While buying something outright can end up being cheaper in the long term, this option is almost always more expensive in the short term. This is one of the reasons so many companies outsource – it is cheaper to pay by the month than setting up your own internal operations.
However, there are some things your business needs that you should consider investing in. You should invest in any product or system that is integral to your business and will have an impact on your productivity and profitability. Whether this is an investment into unique business software or large machinery, when you balance out the short term cost with the long term investment, these items are usually best owned – especially if you can’t risk a hold up in your production line.
Cost-Benefit Analysis
A cost-benefit analysis is a good way to decide whether something is worth investing in or not.
Cost-benefit isn’t just about how much something costs vs the profit it could grow.
For example, if you were setting up a business providing social media services, you might consider a software to help your staff keep tabs on all their clients. A cost-benefit analysis would look at all the benefits from increasing productivity to improving staff welfare and balance them against the cost of the software.
Part of your cost-benefit analysis should also look at risk.
Risk works both ways so it’s important to factor in all the variables you can think of.
Owning an expensive item comes with its own risks – you may have to buy insurance, consider security arrangements and you’ll have to pay for any fixes. On the other hand, owning what you need means that you will have complete access and control and you could save in the long term. The risk of renting is the opposite, you might spend more long term but make short term savings and reduce the risk you take on.
Whether you choose to buy or rent will often come down to how much funding you have right now and which purchases you could put off until later. However, you should revisit your analyses regularly as markets change and your business grows.
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