Archive for the ‘Lease v. buy’ Category

Lease v. Buy– What’s your best option?

Wednesday, March 13th, 2013

Lease v. Buy? Weighing the options for office furniture

Whether you’re setting up a new office or keeping up with the inevitable changes in staff or in your product line, the question pops up. Is it more practical or easier to lease office furniture or buy it outright?

It’s possible to rent almost anything these days. Plus there are a variety of terms and deals. You can rent new furniture or used, rent to own, or trade up as you would with a truck.

So the question becomes, What’s better for your situation?

The pros 

The debate often centers around finances. A big factor is cash flow. If furnishing your office will require a large sum of money, you might be better off using that money somewhere else– say, investing in marketing or R&D or staff, which can’t be leased.

If you have a line of credit from your bank, the funding could be used for emergencies or for business expansion instead of fixed assets. And if your credit is not good, it might be easier to find a loan for leased furniture than for outright purchase.

Your accountant can tell you that leased furniture will not appear on your balance sheet. Also, sales tax will be applied only to each payment and not to the total value of the furniture.

Some lease payments may be tax-deductible. You can check with your accountant on the financial implications.

In some ways, leasing furniture is like leasing a car. You can trade in for a better model, and keep up with the technology. You’re not stuck with the choice you made years earlier.

The cons

The downside is that leasing is almost always more expensive than buying furniture.

You can equate this with a mortgage on your house. If you finance a $300,000 house over 15 years, you’ll end up paying more than $427,000. If it’s not quite that exorbitant when you lease furniture, payments over time do add up to ‘way more than the furniture is worth.

Plus while you’re not building equity in the furniture (so you couldn’t sell it if you had to), you are responsible for the life of the lease. So if your needs change or your business is sold, you are still on the hook.

When you buy furniture, you can often deduct the full cost in the first year. For 2013, for instance, Section 179 of the IRS code allows you to deduct up to $500,000 worth of equipment. So the net cost to you might be quite a bit lower than the actual purchase price. Or your furniture may be depreciated over time– another tax advantage.

Questions, answers

If you do consider leasing, you’ll want to read the fine print.

Some questions for your furniture vendor or lender:

How long is the rental period?

Is there a rent-to-own option? (Do you want one?)

Who pays for delivery? You, or the furniture supplier?

Is installation and set-up included in the lease terms?

Who will pay for pick-up when the lease ends?

Obviously, the higher the value of the lease, the more bargaining power you have.

You, the Decider

Ultimately, the question of lease-v.-buy depends on your unique situation. If your business is in a fast-changing industry, it might make more sense to lease. If your company has multiple locations, can you move furniture and equipment around as needed?

You also want to take into account your cash situation. If cash is tight and there are more pressing needs, leasing might be the way to go.

Some large companies use my firm, LTD Office Solutions, as a sort of warehouse. I store their unused furniture, and turn the surplus into cash or credit. You can be very creative if you own the company!

My advice? Find a dealer you trust with the product you like, then discuss the options.

P.S. Got my email and phone number?

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