Decide whether to lease or buy your office equipment by learning about the pros and cons of each. If your company is in need of new office technology, the decision to lease or buy will be your biggest question. Both options come with advantages and disadvantages. The following will help you decide which is best for your company.
- Easier to upgrade equipment: If you use your lease to obtain items that may be outdated in a short period of time, such as computers or other high-tech equipment, a lease passes the burden of obsolescence onto the lessor. You are free to lease new, higher-end equipment after your lease expires. This enables you to stay competitive in your field with the operation of the newest technology.
- Fixed cost: You will have a consistent monthly budget item. Leases are usually easier to obtain and have more flexible terms than loans for buying equipment.
- Tax deductible: Lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease.
- Less initial expense: You do not need to pay huge sums of money for your office equipment. Your company can use those funds for other uses. The primary advantage of leasing business equipment is that it allows you to acquire assets with minimal initial expenditures. Because equipment leases rarely require a down payment, you can obtain the goods you need without significantly affecting your cash flow.
- Higher overall cost: Leasing an item is almost always more expensive than purchasing it. For example, a 3-year lease on a computer worth $4,000, at a standard rate of $40/month per $1,000, will cost you a total of $5,760. If you had bought it outright, you would have paid only $4,000. However, the monthly payment may be easier for your company.
- Lease Terms: Some lease terms may have minimum lease lengths and required service packages and thus companies may be overpaying. If you stop using the equipment, you may still be required to pay for the entire leasing period. Or you may be able to buy out the rest of your lease.
- Lack of ownership: The inability to consider leased equipment an asset is a disadvantage if you need collateral to qualify for a loan.
- 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, it is wise to purchase the equipment. The lifetime cost to buy is usually less than leasing and you can claim depreciation on your taxes.
- Ownership: It is your equipment to do as you choose and there are no leasing terms to consider.
- Higher initial costs are required: The expense of purchasing office equipment is prohibitively expensive for most people. As a result, it is not a viable solution for all. Even if you want to take out a bank loan, most require a 20% down payment. Borrowing money can tie up credit lines, and lenders may limit your future financial activities to guarantee that you can return your loan.
- Outdated technology: With rapid changes in document management technology, your office equipment will become outdated. Many workplaces pride themselves on offering the latest and greatest in technology to employees and clients alike. While this is a sign of a high-profit margin and a tech-savvy manager, buying new equipment isn’t just for appearances. An office that still tries to run on outdated office equipment will likely deal with setbacks, delays, lowered office productivity, and other problems.
Calculate the expected net cost of an item before determining whether to buy or lease it. Important considerations such as resale value, tax deductions, etc., are to be regarded while calculating—another thing to think about when purchasing equipment is whether it will become obsolete.
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