When it comes to cash flow, small business owners have to do what they can to maximize profits while minimizing expenses. New purchases aren’t always possible, especially high dollar office equipment. Leasing is becoming a more and more popular option, but is it really worth it?
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What Are the Perks of Owning?
When you think about printers, fax machines, and easy to use Ultrabooks for the sales team, leasing is probably the furthest thing from your mind. People often prefer to purchase their computer and technology equipment, primarily because it seems more convenient to own the equipment without making a monthly payment.
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There are other advantages to buying rather than leasing.
- Tax write offs. Equipment like computers and laptops can be depreciated over its service life. Depending on the most recent tax laws, some purchases may qualify for complete deductions.
- Less hassle. Shopping around to find the best value may be time consuming, but arranging a lease can involve a great deal of paperwork and red tape to finalize the transaction.
- Saves money. Businesses that have the capital to invest in equipment purchases can save money in the long run, but the initial costs of buying are much greater.
Most small businesses, especially startups, simply can’t afford allocating thousands of dollars to new computers and office equipment. This makes leasing an attractive alternative.
What Do You Get Out of Leasing?
When you choose to lease rather than buy, you can outfit your office and employees with the latest technology and gadgets for a low monthly rate. Extra fees and charges are incurred over the life of the lease, but it is still more cost effective than most loans and finance options.
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Aside from the low initial investment, leasing offers another huge advantage over buying your equipment – the ability to always stay on the cutting edge without going bankrupt over expensive equipment upgrades. Most lease agreements allow you to upgrade your computers and accessories to stay on top of the latest advancements, even if you’re in the middle of your lease.
There are several other reasons more and more business owners are opting for a lease rather than buying their equipment.
- Tax breaks. Equipment rentals and lease expenses often qualify as a deduction for small businesses. In many cases, it’s a larger write off than purchasing new computers.
- Easy budgeting. There are no unexpected expenses when you lease. Maintenance and repairs are typically included in a single monthly payment. When it comes time to replace your equipment, your budget doesn’t need to be adjusted.
- Minimizes outsourcing. Small businesses on a tight budget will often outsource tasks rather than spending large amounts of money on equipment purchases. Leasing the equipment will usually save more than outsourcing.
Another benefit of leasing is that the company that supplies the equipment is responsible for properly disposing of it when its life is over. If you have ever disposed of electronics, you already know how helpful this can be.
Buying vs. Leasing: Which Is Best for You?
There are obvious advantages to both options when you’re in the market for new business technology, but there are noticeable downfalls to each as well. The most cost-effective choice for you and your business will depend on your needs as well as your cash flow.
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Here’s a quick comparison:
- Initial costs. Most small businesses are working with a tight budget. The total cost of an investment will often be the primary decision maker when it comes to big purchases. Lease arrangements typically require very little, if any money down with a single monthly payment.
- Ownership and equity. The biggest reason individuals choose to buy over leasing their equipment is because a purchase is an immediate business asset. You’re free to use and maintain the items as you see fit, and can sell, donate, or otherwise dispose of the items when you’re done.
- Long term costs. Buying business equipment requires a much greater initial investment, but interest and convenience fees that are included in your lease payment will add up to a bigger expense over the life of the equipment. Maintenance costs and unexpected repairs are usually less of a concern for individuals who lease their equipment.
- Upgrades and maintenance. When it comes to electronics and small business technology, leasing is often a more attractive option because of the short life span many computers and mobile devices have before they are obsolete. The ability to upgrade to more advanced equipment without shelling out more cash is often worth the added long term expense of leasing.
In most instances, leasing is the best option to meet the computer and technology needs of the average small business. But it’s important to understand the types of leasing options that are available and to sign an agreement that will work for you.
What You Should Know about Leasing
There are generally two options available – a capital lease means that the equipment is considered a business asset for tax purposes and the lessee usually assumes all of the risks and benefits of ownership. Most electronics and technology equipment rentals are operating leases, where the leasing company retains ownership and responsibility of the merchandise.
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Review the lease terms before making a decision. Computers and office technology rental periods can range from one year to four, and may have certain conditions regarding upgrades or trade-ins before the end of the lease agreement. Other details to consider include:
- Insurance and maintenance requirements. Some leasing companies include these costs in the monthly payment, while others give you the option of adding the equipment to your business insurance policy.
- Changes, updates, and trade-ins. Be sure to ask what the policies are regarding early termination of the lease, adding additional equipment to the lease, or trading for a newer model.
- Buyout options. Buyout options aren’t usually too appealing when you’re leasing electronics, but it’s a good idea to make sure you’re aware of your options when your lease agreement ends. A lower than fair market value buyout option can be very beneficial when you’re leasing equipment with a longer useful life span, like printers and copy machines.
Whether you need 10 desktops for your startup’s office staff or a multifunctional networking center for the next big .com. leasing can provide a number of advantages over traditional purchases, especially as fast as today’s technology advances.