Leasing Office Equipment

You've made the leap and are starting a new business, or perhaps moving an existing business to a new location.  Businesses in this situation are frequently cash strapped and operating on a thin credit margin.  The majority of businesses are extremely vulnerable during this phase, the number one cause of small business failures is under capitalization.   Being a savvy business type, you, of course, know this.   You understand that liquidity is of critical importance during this time period.  You have a game plan, some startup capital and now you are facings some tough choices on how to make your dollars stretch and how to preserve the maximum flexibility until cash flow is a certainty.

Office Equipment

For starters you need the basics.  You've located an office or production facility.  Its a great location and perfectly suited to the needs of your company.   Just one problem, its completely empty.  You have talent, skills, a gameplan maybe even some employees.  What you need is furniture, desks, computers, communications networks and the primary equipment that is used by your enterprise.

After doing some price checking, you realize that there are a thousand little things and a few big things your operation simply must have to survive.   You cut corners here and there, run some numbers and watch in horror as your expenses swell and your operational flexibility seems to vaporize.   You need a plan, a plan that will work.   The kind of plan that gets your company stocked up right and leaves you enough surplus cash to take care of day to day operations until the contracts start rolling in.

Solutions

Instead of pulling the last few strands of your rapidly greying hair out of your head, it is my hope that you will remember this article.   What do we propose that you consider?  In a word, we've got the solution for you.   Leasing.  Not renting, not buying, simply leasing.

Office Equipment Leases

The advantages of leasing your office equipment are surprisingly many.    Time to apply your savvy business skills and start breaking it Down

Lower Initial Cost
First, and perhaps most important, is the lower outlay.   It costs much less to lease than to lay out cash up front.   You don't own the equipment outright, but in most cases a lease gives you the option of a later purchase.    This tradeoff gives you capital to get more and higher quality equipment. It also allows you to leverage your existing cash and credit lines more effectively.  Money you don't have to spend up front on one thing, can be used for another purpose. 

If your business succeeds you will be in a position to move quickly.  In the worse case scenario, you don't have to figure out how to resell a bunch of used office equipment.

Financing
If you are operating using every available resource, as many businesses are during this phase, your credit lines may be tight.  As a general rule, leasing requires a much shorter credit history and operational time for your business.   Leasing is an attractive option for both parties, as the equipment itself is a useful form of collateral.   Another significant advantage, is that leasing tends to run on its own credit lines, which frees your normal lines of credit for other purposes.

What Can be leased

Almost any piece of office equipment can be leased.  Generally leasing is reserved for large ticket items, which might be otherwise out of reach for the company.   Anything from copy machines to data centers to factory equipment can generally be obtained through a leasing arrangement.

Technological Equipment

Technology devices have a strong tendancy to become obsolete very quickly.  Purchasing an item of this nature can leave your company behind the pace of competitors within the short space of just a few years.   Way behind.  Like, completely in the dust, behind your competitors.

Leasing advanced technology is a great solution.   When the lease expires, you can upgrade to the latest and greatest, rather than be stuck with artifacts of a bygone age.    Tech moves quickly, and this strategy not only allows you to stay on the cutting edge, it reduces maintenance costs and part replacement headaches that older equipment often brings.    Technology goods tend to be big ticket items, so leasing is superior to ownership in many cases.    This is true at the early stage of liquidity issues and during later stages when you're company has to maintain competitive flexibility.

Lease Approval

Compared to a standard loan, lease approvals tend to be much quicker.   The reason is, that a leased item can easily be recovered and re-leased, whereas an item financed by a traditional loan does not have the same channels available to it.   Your bank is stuck with equipment it can't use if it takes a chance on financing that doesn't pay off.   An equipment leasing company is in a much better positon, as they have established vending channels.  Since their risk is lower, they are more willing to lend, and they can almost always approve your lease quickly.

Most office equipment leases do not originate with the bank, but rather with a company that provides the equipment or specializes in its distribution.  Since these tend to be in-house financing lines, the impact on your banks credit line is minimal or non-existent.   That exta dough can go a long ways towards keeping your company afloat until the ball gets rolling.  Your future revenues can be used to leverage your initial lease in a way that a full purchase might not be able to.

Purchase after lease
Most leases have contractual clauses which allow for a purchase afterwards.  In most cases it is a good idea to have this option.   Some types of equipment which you needed initial financial liquidity for, simply make more sense to keep.  This is especially true of things which tend to maintain utility value over a long lifespan, such as conference tables.  Having the option to keep things which are working for your company, and getting rid of things that do not, is a tremendous agility advantage in business.

Modernization

If your company is now looking at a wasteland of obsolete equipment, they are in a similar predicament to that of the new business owner.   The advantage of leasing is the ability to rapidly modernize, when maintenance and replacement have become prohibitively expensive or simply a non-competitive situation.

Tax Considerations
Leases tend to generally be advantageous for tax purposes.   Finance leases are usually considered debt, and most leases involve operational expenses which can be depriciated by your accountant.    As these rules change on a fairly regular basis, make sure to consult with an accountant or other tax professional, so you fully understand how this process works.

Office Equipment Leasing Arrangement

Before diving into a lease or other contractual agreement, it is always a good idea to read the contract.  This is basic business sense and applies to all transactions not just leasing plans.   Some factors to consider.

Responsibility for damages

It is important to know who is going to foot the bill for damaged or worn out equipment.  Assess the lease document and know whether there is a risk of unexpected expenses.   Repair fees also fall under the same umbrella.   If the leasing company covers these types of expenses it gives you an additional advantage in terms of cost clarity.  

Lease Kill Fees

Kill fees may be important if you wish to end the lease prematurely.  Situation where this may come into play may include the following:

A need for an adjustment in the types of equipment you are using. 
The item no longer fits your companies direction or is simply not needed. 
You have enough cash flow to make a full purchase of superior equipment.
A major client requires you to have a different system
You wish to allocate your resources differently due to changing circumstances.

In any of these cases you will be very glad you didn't buy outright.  For this reason of maintaining maximum flexibility, you should be aware of any potential kill fees in the contract and to what extent they may affect your bottom line if exercised.

Upgrades

Similarly, in planning ahead, the option to upgrade leased equipment is a winner.  Some equipment may require frequent upgrades, or you may wish to have access to better equipment as your cash flow improves.   

Purchase options

The option to buy is usually present, but not always, in a lease agreement.   Depending on the equipment which is leased and how you plan to put it to use, a purchase option may make sense.  

Advantages of Leasing

The advantages are numerous and suitable for the majority of startups and expanding businesses.  Now that you are up to speed it is time to consider your office leasing needs.   Choose well, choose wisely and you will prosper in business.   Flexibility is the key to any operation, an office equipment lease makes sense in most circumstances.

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