Should you purchase or lease your office equipment?
Upsides of Purchasing
No Interest Payments
Purchasing a device can be a great decision if you have sizable cash reserves. A purchase involves a one-time payment for the price of the equipment. This eliminates the need to make interest payments over the course of a payback period, resulting in a better Return on Investment (ROI).
Flexibility to Switch Technology Partners
Purchasing gives you the flexibility to change your maintenance contract to another vendor. At any point if you become dissatisfied with the level of service you are receiving from your current vendor, then you can make a change at will. Whereas with a lease service it can be switched still, but the ease of switching is contingent on whether it is a value lease (includes print allowance in payment) or a straight up lease which bills equipment and service separately.
Downsides of Purchasing
Large Business Expense
Purchasing equipment can require a large upfront investment that many organizations cannot readily afford. When it comes to tax implications, you can take only a small fraction of the purchase value as a depreciable expense each month. This reduces your tax liability, but not nearly as much as it does with an ongoing lease. For your specific situation, we recommend consulting with your trusted tax professional.
Your organization tends to hang on to equipment for too long, sometimes even up to 7-10 years too long. Within this amount of time, the equipment becomes outdated, unreliable, and repairs become necessary. If the repair or purchase of a new machine continues to get delayed, the organization can be caught off guard with a large expense that was not previously budgeted for. Not to mention, after 5 years it can become exceedingly difficult to find replacement parts should they break and companies will also charge more for maintenance on older equipment.
Upsides of Leasing
Low Upfront Cost
Leasing can allow your organization to acquire a multifunction device with little or no upfront cost. From a cash standpoint, leasing allows you to spread out the cost of the equipment over a set period of time. This allows you to plan all payments on a monthly basis, removing the uncertainty of unexpected repairs or replacements that were not budgeted for. Finding a part that goes with an older piece of equipment can be a timely and expensive process. By updating your equipment on a regular basis, through a lease, this issue can be eliminated.
Leasing enables you to ensure equipment is regularly updated. It’s best practice to update your equipment every 3-4 years. This helps keep your business at the forefront of newer and better technology, including better security, longer life for supplies, and less visits for repairs, which keeps you consistently up and running. It is the best avenue for those who want to stay current in a rapidly evolving technology landscape.
Downsides of Leasing
You Don’t Own the Equipment
When you lease, you don’t own the equipment and therefore have no equity in it. At the end of its usable life, you are unable to sell the equipment and receive any of your investment back. Lack of ownership may exempt you from certain tax benefits simply because the value of the asset is not on your financial books.
High Interest Payments
When leasing, you will have to pay a higher cost over time than you would have paid with an upfront purchase. This is due to the interest that is incurred in each payment which will cause the overall cost of the equipment to be more expensive for the business. These interest payments can tend to vary. For instance, it is important to keep in mind that interest payments on a lease will be higher if it is a dollar buyout lease vs Fair Market Value.