This is a common question. The answer is, of course, it depends. I have outlined some of the reasons behind both, as well as the pitfalls.Leasing:
Leasing is the most common contract type in the copier world. 95%+ of businesses lease. The reasons vary, but include some of the following:
- Flexibility based on changing technology
- Even if you buy it, you still have a service payment
- It is a budgeted operating cost
- No upfront investment required
- Unless you’re a printer, they're an expense. Spend cap dollars on things that make you money
- People want prints and copies, not printers and copiers
- Various accounting reasons
- Lowering my monthly expenses
- You OWN it; You don’t own that asset if you lease it
- Tax reasons
I generally explain it this way. To me, as a copier dealer it doesn’t matter if you lease or purchase. I either get money from you directly or from a finance company. If I look at the fact that the most common lease term is 60 months, and the fact that the average length a lease lives in the field before it is upgraded is 44 months, you actually pay less out of pocket for the lease and you don’t keep it past its useful life “because you own it."
Let's take a $10,000 piece of equipment. If I buy that cash it is $10,000. If I lease it, it is going to be in the neighborhood of $200 per month for 60 months. At face value, I am paying $12,000 for a $10,000 piece of equipment and I have to send it back.
Now, if 44 months holds true and the manufacturer or a competitive manufacturer provides incentives to get that equipment out of the field, you pay $8,800 and don’t have to pay to get rid of it.
Nothing loses value faster than a copier. Now let's address the pitfalls.
- Lump sum investment
- Depreciation schedules
- Danger of keeping it too long and the cost of operation increasing exponentially
- Not having the right technology at the right time
- Upgrading too early, too often and running up the payments
- Increased operating expense versus purchase and service agreement
- Another vendor to manage (usually)
- Changes in how leases are handled from a tax perspective
The bottom line is there is no right answer and the decision needs to be made based on the unique needs and circumstances in your business when you make the acquisition.