Getting a leash on leasing. 3 Things you should be wary of.
Leasing was presented to us as an opportunity to preserve cash while expanding our assets. During our rapid growth, we were constantly short of cash, so this became an important tool. If you want to read the classic reasons for leasing read here.
Leasing is very serious commitment. Although it has helped us, it has also been a major financial stumbling block. Make sure you really think it over. It only takes a few minutes to make a multi year commitment.
Here are 3 things you should be wary of before you lease:
- Will the equipment be needed in year 3,4 or 5 of the lease? This has caught us once or twice. The biggest was with a postage meter. If you do bulk mailing this is an amazing piece of equipment. When we leased our unit 75% of customers required information through mailing. With in a year it was less than 25%. With ink, and reset charges it became more expensive to operate than what we were paying in stamps. In the end this cost us $6000 in lease payments for a machine we didn’t need. By the way we tried to talk to Pitney Bowes about our situation. May as well have talked to a wall.
- Do you need all the features? Leasing makes upgrades real cheap. But over the life of a lease it can add up. Only lease what you need! That collating stapler on a photo copier may sound cool – but how much does it really save you. One employee can staple a lot of documents in an hour.
- The Contract. Read the contract – twice! Here are some key questions
- What are the penalties for breaking the contract?
- Who pays for repairs? Remember you might not mind the scratch on the front on the photo copier – but they may demand you fix it before returning it.
- What are the buy out conditions?
- What is the warranty?
- Are there any fees due at the end? Reconditioning fees etc
a virtual monopoly they donÂ’t need to have customer service. Things I have leased:
Companies I have Leased From:
Companies I would not lease from:
Classic Reasons
Gain tax advantages
Lease payments are entered in your accounting records as a monthly operating expense. The monthly lease payment, therefore, becomes a 100% deductible, monthly operating expense. The tax advantages are taken monthly rather than at year-end.
Conserve capital and lines of credit
When the cost of equipment is known and fixed in advance, the budgets of various departments can easily be forecasted, as can the profitability of various marketing plans, allowing your company to make more informed and accurate decisions.
