11 May Should Leasing Be Part Of Your Tech Strategy?
One of the major decisions any company must make is whether to lease their technical equipment or to buy it outright. As with most decisions in the business world, there are pros in cons to both sides of the equation.
The Pros of Leasing
Your Equipment Won’t Become Obsolete
One of the major setbacks to buying your equipment vs leasing it is that most of the technical equipment you buy, especially in the area of personal computers, becomes obsolete fairly quickly. The computer you bought only a year ago may not be able to handle the bigger, faster, more robust utilities of today or tomorrow. Buying a new computer system every year or every other year could be quite costly, where leasing it allows you to get the most up to date equipment, without digging too deeply into your IT budget. Sixty-five percent of respondents to a 2005 Equipment Leasing Association survey said the ability to have the latest equipment was the number-one perceived benefit of leasing.
Thirty-five percent of the respondents to the Equipment Leasing survey said their main reason for leasing is that they will have a predictable monthly equipment expense. It’s much easier to factor your tech budget when you have a predictable expense, rather than trying to buy new equipment as it becomes necessary, as in the case of obsolescence or breakdowns. With leasing, if your equipment breaks down, the equipment can be replaced at usually no charge to your business.
No Money Down
Many businesses, especially small to mid-sized, have a very small operating budget and buying equipment outright may just be too much for their budget. With most leasing options your business can get state of the art equipment with no money down, without having to spend those funds needed in other areas of your business.
Keeping Up With Your Competition
Leasing enables your business to acquire state of the art equipment that it otherwise would not be able to afford, which helps you keep up with the competition, while still maintaining your budget. With a smaller budget, you may be able to buy the basics of what you need, but you may have to settle for less. This could, in the long run, hurt your company as the competition moves forward in today’s technology and your company just crawls along with old outdated equipment.
The Cons Of Leasing
It Will Cost You More In The Long Run
While it might cost you less money upfront, in the long run it will cost you more to lease your equipment than buying it outright. Of course, that is taking into account how long your lease is for and how long the equipment’s expected life cycle is. Often, you may end up paying hundreds or even thousands of dollars more to lease than to buy comparable equipment, even factoring in life cycles and equipment upkeep. Some equipment lends itself much better to leasing than to buying, but in other instances it is simply more cost-effective to buy the equipment outright.
You May End Up Paying For Something You No Longer Need
Depending on the length of lease on equipment, you may end up having to pay on your equipment, even if you are no longer using it. This is one factor you must take into account when deciding whether leasing is a viable option. If you know you will need the equipment for more than two years, then it might be a good bet, but if you aren’t sure how long you might need the equipment, you might think more in the lines of buying. You can often recover much of the cost of equipment by reselling it when your company no longer needs it.
You Don’t Get That Big Tax Deduction
With operating leases, you can only deduct a portion of your monthly payment on the equipment you are leasing, but under Section 179 of the IRS code you can deduct the full cost of newly purchased assets in the first year. This deduction may be a considerable benefit, depending on how long you plan on using the equipment and the actual cost of buying it. Again, this depends largely on your annual budget, if you can afford to buy now and file later for the deductible.
Leasing Can Be Complicated
There’s nothing complicated about buying new equipment. You decide what you need, you price the equipment, make a decision and then go out and buy it. With leasing, on the other hand, there is usually much more paper work involved, as the leasers often requires financial information on the company and other information such as where and how equipment will be used. You will also be required to fill out a leasing contract, which requires you to understand the terms of the lease and to negotiate for the best possible terms
So Which Is Better?
As you can see, there are pros and cons to leasing vs buying and, depending on your business needs, your budget and your outlook, either option might be the right option for your business. Most businesses today use both options. Some equipment they lease, especially more expensive equipment that they need to be up-to-date, whereas other equipment they buy outright, especially less expensive equipment or equipment that will may not be needed in the near future.
Ultimately, you will have to weigh the pros and cons for the equipment your company needs, to decide whether your company will be better off leasing or buying. There are many tools on the internet that will help you to make this decision.