Take a minute to ask yourself some basic questions. Are you seeing growth in your industry? Is your industry becoming more competitive? Is quality a high priority? If you answered “yes” to any of these then you may want to consider a lease. Leasing will provide the flexibility required to grow with your business and upgrade to more productive technology when you need it. Leasing also provides a quick way to acquire the equipment necessary for business with small manageable payments all while building credit, not to mention certain tax benefits.
Know the difference between a Fair Market Value lease or “FMV” and a Dollar Buyout Lease or $1.00 b/o.
With most good leases you will have the option to buy the equipment at the end of the lease term or after the maturity date has passed. Usually there is a cost to do so, called the fair market value. With a $1.00 buyout, you pay a higher monthly payment so that at the end of the term the transfer of ownership is shown with the payment of just one dollar. Your best bet is to do a $1.00 buyout with shorter term leases and a “FMV” lease with longer term leases. This is in part because after a long term lease (48-63 months), the equipment is now considered aged; why would you want to pay to own it? A $1.00 b/o on a 12-39 month lease still leaves enough life in the machine to justify paying the higher monthly amount during the lease term but to continue owning it without payments for a few more years.
Now, a look at purchasing.
The obvious advantage here is avoiding term obligations. You may rid yourself of any month-to-month lease payments, but most copy and print equipment need to be serviced regularly. It is very wise to obtain a service agreement on your equipment, but that will bring you back to a reoccurring payment, making the idea of eliminating ongoing costs moot. A better argument for purchasing is avoiding interest. Cash is king, and if you can purchase without interest you can save that money for other aspects of your business.
Beware, the common purchasing pitfall.
The temptation with purchasing equipment, however, is holding on to it for too long! The older the equipment the more money you will have to invest in it and the less efficient and reliable it becomes. Pretty soon you will be using the money you saved from not paying interest to paying for service to keep your equipment running. I always explain to my customers that efficiency and cost savings are absolutely good goals to have, but reliability is the key. Any money saved is almost always lost if the equipment is not reliable.
Another issue with purchasing is the loss of flexibility. Many vendors are unable to “buy back” used equipment. Manufacturers may offer incentives to do some type of a “trade in,” but this can be hit or miss. I have seen businesses purchase equipment only to have their needs change. As the value of equipment typically depreciates if you try to sell it yourself, you could end up taking a loss.
To Lease or Not to Lease: Final Thoughts
Leasing provides an avenue to keeping equipment relevant. Newer equipment will boost morale and productivity for the end users. The best thing to do is work with a company you trust. Ask for references and check out their reviews online. Do your homework when seeking out a vendor, and be sure to look at more than just the price tag.
