LOOK BEFORE YOU LEASE OFFICE EQUIPMENT
by Bobbie Trief
In this cash-poor era, more and more companies are considering leasing office equipment and/or furniture instead of buying it. But a lease deal, that sounds so attractive on the surface, often ends up
costing lots more money by the time it has run its course. Business
managers need to carefully review all the various purchase and lease
options, and the costs involved, before making a definite decision.
Shop Around
You need to determine what your total cost will be. As soon as you
know the type of equipment you need, start shopping, but don’t let
the seller(s) know you’re even considering leasing. Always shop as if
you’re paying cash. Let’s say you’re looking for an office copier.
Ask each seller exactly how much he/she will sell it for. If it lists
for $7,000 and you offer $6,000 cash, you’ll probably light up lots
of eyes and receive immediate attention. Remember, you aren’t the
only one with a cash-poor business these days.
Figure Out What The Money Costs
Once you’ve agreed upon a figure (let’s say $6,000), determine how
much it will cost you to finance that through your bank. Look at the
current five-year, fixed commercial rate and how much it will cost you
per month. Now you have two totals – one for the cash purchase ($6,000)
and the other for the cash purchase + financing. Add the two together.
Now, ask the same seller for a lease agreement. He will probably offer
you a 60-month lease on the $6,000, at about $163 a month. Look it up,
and you’ll see that this is close to double the interest amount! This
is the hidden cost of leasing. You’ll find that most vendors are
reluctant to reveal the rate they’re going to charge, either because
they haven’t bothered to figure it out or because they know they’re
not competitive. Tell the vendor you need to know the built-in
interest rate before you can make a final decision.
Most leasers will also want the first and last month’s payment
up-front, so, figure on a hefty cash outlay. Multiply the 58 remaining
months with the first and last months to get a final figure. There’s
also the residual payment if your firm ends up wanting to buy the
copier at the end of the lease. Residuals are generally 10% of the
total amount of time multiplied by the monthly rate. Total all these
amounts, and the lease ends up costing you approximately $4,000 more
than the original cost of the copier.
Compared to your cash purchase, that’s a huge difference. Compared to
your cash + financing deal, it’s still a big difference. And all for
the same piece of equipment!
Other Costs
Some lease agreements also require you to carry expensive maintenance
contracts and to purchase all related supplies from the vendor. Make
sure you read the fine print of all contracts. You should pay the same
amount of attention to the purchases and lease deals you’re making at
the office as you do to the deals you negotiate for your own car or
home. And you should encourage your employees to do the same. You
might even set up an incentive program, rewarding them every time they
can show you that they’ve saved the company money.
So, the next time someone comes in excited by a $163 a month lease deal,
tell him/her to bring you the comparison figures, then you’ll be able
to decide whether purchasing or leasing will cost you more money!
Bobbi Trief is an independent Management Consultant specializing in environmental and conservational issues.