Information technology (IT) and office equipment expenditures are inevitable for modern businesses. In today's office environment, deciding on the right business equipment and printing devices for your enterprise is critical.
After choosing the best solution, the next question to ask is – how will it be financed? Businesses have the option to buy or lease new or pre-owned office equipment. Each option has its pros and cons related to costs, tax incentives, maintenance, and depreciation, but how do you know you are getting the best solution at the best price for your business?
Let's discuss the top factors you need to consider when buying or leasing office equipment for your business. Fortunately, a qualified managed service provider (MSP) will provide your business with the knowledge and insights needed to choose the office equipment purchasing option most suitable for your business needs, goals, budget, and—most importantly—your employees.
Top Factors to Consider When Deciding to Buy or Lease Office Equipment
While purchasing copiers and printers outright may be cost-effective for some businesses in certain instances, many companies also benefit from equipment leasing. Businesses may also have the option of buying or leasing used office equipment. Used business equipment may adequately meet your enterprise's IT needs and come with a much lower price tag, however, used IT equipment carries an increased risk in terms of cybersecurity and maintenance costs. Consult with an MSP to determine if pre-owned office technology is a suitable solution for your enterprise.
Before discussing a few factors in greater detail, consider some critical information when comparing financing options for new and pre-owned office equipment.
- Evaluate your equipment usage and needs.
- Assess your organization's budget, cash flow, and financial priorities.
- Consider the total cost of ownership (TCO) throughout equipment lifespan.
- Review lease types and monthly lease costs.
- Identify the purchase price range your organization can afford.
- Consider budgeting room for tax and inflation rates.
Does Your Organization Consistently Require State-of-the-Art Equipment?
If your organization needs the latest equipment at all times, then leasing or Hardware-as-a-Service (HaaS) are likely better options for you. Leasing allows you to upgrade your equipment and cycle outdated IT equipment more frequently. Legacy equipment can be even more costly, especially to small and medium-sized businesses (SMBs). It can lead to poor productivity, lower revenue, and lost data.
Leasing is a great way to stay current with state-of-the-art technology specific to your industry and business goals — from digital printing presses and high-speed inkjet printers to scanners, all-in-one printers, and more. For example, suppose you have a two-year lease on a multifunction printer (MFP). In that case, you can renew the lease after the expiration and replace the current MFP with the latest model, which may be faster with improved security features, and provide more significant cost savings in terms of energy consumption, productivity, and more.
Is a Predictable IT Budget Important?
Leasing provides a pre-determined monthly expense, which can help SMBs budget more effectively. Generally, no upfront costs are involved with leasing, which allows for additional cash flow. The initial investment used to purchase office equipment may be too much for an SMB with a limited budget. SMBs need a degree of liquidity to maintain business-critical tasks and typically cannot afford to tie up much-needed lines of credit that could be used for other functions such as advertising, marketing, and talent recruitment.
The equipment you buy outright eventually becomes outdated and even obsolete due to depreciation and technological advancements. A growing small business can often not afford to lag behind its competitors, especially technology. Of course, in the long run, leasing IT equipment (just like automobiles) is almost always more costly than buying. Therefore, often the decision to buy or lease technology depends on finances. Pay now, or pay later—one of life's constant conundrums.
Does Your Organization Want the Option to Purchase at the End of the Lease?
If having the latest technology is not critical to your enterprise, then buying may be the preferred route. Some businesses prefer to own their equipment outright for various reasons. One reason is that they like the equipment they are purchasing and believe that they will continue to for years to come.
One option that could give you the best of both worlds in a scenario like this is a dollar-out lease. A dollar-out lease is one financing option that provides predictable budgeting and a path to ownership. This type of lease is structured to allow businesses to purchase the equipment outright at the end of the lease for just $1. However, the lessee typically has to pay a higher monthly payment. With a 1 dollar buyout lease, if a business still prefers their office equipment at the end of their lease term, they can own it without any additional investment (besides the dollar). But, if the equipment is not performing and meeting business needs, they can decide to upgrade to a newer model or even go with a different product line.
Depending on what leasing option you opt into, a print assessment is a great way to determine your business's best brand and equipment model. Credible managed service providers conduct free print assessments to provide insights on print usage, areas of waste, and hidden expenses, ensuring companies match the features they need most with a brand and equipment model within budgetary restrictions.
What Lease Type Best Suits Your Business Needs?
If you decide on leasing versus purchasing, there are still other decisions as several different types of lease agreements exist. Do you want a capital lease or an operating lease? A capital lease is like a loan and is generally longer, sometimes as long as five years. The equipment counts as an asset on your balance sheet, and you can deduct its depreciation on your taxes.
Operating leases typically have shorter term lengths—three years or less. With an operating lease, the lender retains ownership, and for tax purposes, the equipment is considered a monthly operating expense instead of a depreciable asset.
Other factors to consider when leasing are buyout options, insurance requirements, and early lease termination costs. Some leases have a $1 buyout option (dollar-out leases) at the end of the lease, while others only allow end-of-lease purchases at their fair market value (FMV). Some leases require equipment insurance, while others add fees to your monthly payment. If you no longer want or need the equipment and want to terminate the lease sooner than expected, some leases may include a cancellation penalty.
Deciding to Purchase or Lease Office Equipment for Your Organization
Every business has unique equipment requirements and budgetary restrictions. These specific parameters require office equipment financing decisions to be made on a case-by-case basis. For SMBs, leasing may be the preferred financing option since they have limited capital. For more established companies, purchasing IT equipment with long life cycles may be the better long-term option for their organization.
When it comes to deciding between leasing and buying office technologies, the best decision you can make is to consult with a trusted managed service provider to find the right solution for your enterprise.
Editor's Note: This post was originally published on August 14, 2014, and has been updated for accuracy and current best practices.