Buying vs. Leasing Equipment: What You Need to Know
- How Warranty and Training Options Impact Equipment Purchasing
Landing a new account is worth celebrating, but don’t linger too long because things can get tricky when it comes to gearing up for the job. Cleaning equipment isn’t cheap, and that new contract might require tens of thousands of dollars’ worth of new machines and supplies right out of the gate.
Building service contractors will have to decide whether they should buy all those scrubbers, vacuums, carpet extractors and pressure washers upfront, lease them over time, or look for a short-term rental. Making that decision requires a thoughtful look into the budget, the new contract and the cleaning expectations. Here’s how to parse out the risks and rewards of buying, leasing or even renting vital assets.
Most large building service contractors (BSCs) prefer to buy their equipment outright. The move makes sense for a big organization with a generous capital expense budget. Sure, that initial cash outlay will be large, but the overall lifetime costs will probably be less. Plus, buying usually comes with more tax advantages than leasing or renting.
Owning equipment also empowers companies to leverage those pricey assets.
“A large BSC with many customers has a lot of flexibility when it comes to their equipment,” says Bill Allen, territory manager, Fagan Sanitary Supply, West Elizabeth, Pennsylvania. “They can shift machines to other locations or trade pieces in at the end of their useful life for upgrades.”
Smaller companies don’t have that same financial clout, so buying outright may drain their capital budget or overextend their credit.
“Leasing usually enters the conversation when someone needs a lot of equipment,” adds Allen. “Most companies don’t lease just one $15,000 piece of machinery, but a fleet at $30,000 to $75,000 or more is another story.”
In these cases, leasing provides an affordable way to scale up quickly with a predictable monthly payment. Companies can even roll durable equipment like janitor carts and accessories into their agreement, according to Keith Schneringer, senior director of merchandising and sustainability, WAXIE Sanitary Supply an Envoy Solutions Company, San Diego. Lease payments usually come out of operating expenses and are reported on the company’s profit and loss statement. At the end of the lease, typically 36 to 60 months later, the equipment is returned.
There are also lease-to-own options where BSCs purchase the equipment at the end of the term. These leases may be considered a capital expense for accounting purposes and could be eligible for depreciation deductions on business taxes.
The rules for this kind of lease are complicated, so it would be best to consult an accountant before taking one on. In fact, consulting an accountant is always a good idea when weighing the risks and rewards of buying versus leasing.
“Accountants are great at rooting out those hidden costs,” says Jim Pancero, president, Jim Pancero Incorporated Sales and Sales Leadership Training.
Pancero is quick to point out that there are ways to get burned by a lease. He cautions to look for usage limits, like a milage clause for a leased car, that may result in unexpected fees. Pancero also suggests assessing how demanding the work environment will be and if the equipment can handle the wear and tear.
“Risk analysis should always be the first step in deciding whether to lease or buy,” he says, suggesting BSCs also ask about insurance and maintenance.
That said, leasing is a great way to keep the fleet of equipment current. While advances in cleaning equipment trend more towards evolutionary than revolutionary, leasing allows for a faster rollover to state-of-the-art machines.
“I always talk about the next step when discussing leasing or buying equipment,” says Allen. He suggests setting some money aside for future investment. “What if you run into an issue that requires special equipment, like an interim carpet machine? You don’t want to have to ‘make do’ until your lease is up,” he adds.
Of course, a BSC could always rent that special piece of equipment. Short-term rentals offer predictable operational costs, though it’s likely the more expensive choice over the tool’s lifetime. It does, though, make financial sense for rarely used, expensive machines.
“There’s less liability with a rental,” says Pancero. “You don’t have to worry about maintenance or downtime and bigger machines often come with an operator, so you don’t have to worry about training.”
How Warranty and Training Options Impact Equipment Purchasing