There are two big questions that organizations struggle with, when it comes to getting their next copier – “Which machine is best for my business?” and “Should I buy the device, or lease it?” The answer isn’t the same for everyone. If you’re looking to expand different areas of your business, or invest in other ventures (technology, marketing or employee development), you may need readily available cash to accomplish this. If extra money is limited, leasing could be a great option, as a capital expense isn’t always necessary. On the other hand, if your company has a good amount of cash flow, purchasing a device, outright, could allow you to eliminate interest payments. Years ago, the ratio of buying vs leasing was a 50/50 split. However, as copier technology has increased, along with capability that number has begun to shift in favor of leasing. Copiers no longer just copy; they now function as a business assistant. Today’s copier, now known as a multi-function device (or MFP) can copy, print, scan, fax, and perform a variety of advanced booklet-making finishing options. In addition, today’s copier has become an important part of the document management solution. Before we begin to look at whether leasing or purchasing a copier is best for your business, it’s important to understand the types of leases that are available to you.
LEASE OPTIONS
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Fair Market Value Lease
A Fair Market Value lease (FMV), also commonly known as an operating lease, is probably what most people think of, when they hear the term “lease.” These types of leases are most commonly used, as they typically carry a lower monthly payment. FMVs allow the lessee to use the piece of equipment for a pre-determined amount of time, at a fixed monthly payment. At the end of the lease, the lessee has 3 options – 1. Return the equipment, 2. Purchase the equipment at the determined Fair Market Value, or 3. Upgrade to new equipment. Things to know about FMV leases (FMVs):
- They are usually the most affordable leases.
- FMVs are commonly used for IT and technology-based equipment (Computers, Laptops, Tablets, Printers, MFPs, etc.).
- They are generally used, when a company does not want to keep the equipment at the end of the lease.
- A FMV will help manage the cost of equipment, especially with continuous upgrades. This helps curb inefficiencies, related to aging technology.
- FMVs have a fixed monthly payment and offer lease terms ranging from 12 to 60 month terms.
- Since the equipment is not owned, the lessee can use it as an operating expense.
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$1 Buyout Lease
$1 Buyout leases are similar to a loan. This type of lease, also known as a capital lease, usually has a higher monthly payment in comparison to a FMV. However, just like the name, this lease option allows the lessee to purchase the equipment, at the end of the term, for $1.00. Since this lease is very much like a loan, companies most often choose to utilize it, when they plan on keeping the equipment. Things to know about $1 Buyout Leases:
- This lease is most often used on equipment that retains its value over time.
- $1 Buyout Leases have a set term and fixed monthly payments.
- At the end of the term, lessee can purchase the equipment for $1.00.
- There are tax benefits, associated with a $1 Buyout lease. For example, if you lease a piece of equipment for $10,000, this device will show as an asset on your balance sheet. For tax purposes, a company can use Section 179 to possibly deduct the entire $10,000, as a business expense, within the first year of the equipment purchase. Before making this type of decision, it’s always best to check with your financial advisor.
Now that you know a little bit more about the types of leases, let’s take a look at the pros and cons of leasing and purchasing your copier/MFP.
Benefits of Leasing a Copier
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Having the most up-to-date machine -
Technology advances quickly; copiers included. Avoid settling for a lesser machine. Leasing makes it easier for companies to take advantage of the latest technology by bundling the cost into low monthly payments.
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Upfront costs are low -
Leasing allows you to put little to no money down. You get the desired equipment, without going over budget or using non-allocated funds. Money can then be placed into other areas of the business, such as labor or marketing. -
Known monthly expenses -
With leases, companies have a pre-determined cost. This allows for easier budgeting. -
Less hassle –
In most cases, with a leased machine, organizations don’t have to worry about reselling the unit, or finding a way to dispose it. Leasing also allows you to bundle maintenance, toner and additional accessories into the monthly payment. This type of lease agreement is often referred to as a Managed Print Services (MPS) contract. An MPS agreement provides maintenance and automatic toner replenishment for copiers that are included in the lease. This frees up a company’s internal resources from having to keep track of toner consumable levels and puts the burden of hardware repair on the vendor, rather than your IT staff. -
Upgrading is easy -
Leasing allows for a lot of flexibility, in terms of hardware upgrades. An organization has the ability to prebuild technology upgrades into the lease term and still keep the same payment amount. For example, within a 3-year FMV lease, you can have the option to upgrade your technology, as early as 9-12 months, before expiration. For a longer lease, such as a 48 or 60 month, the options to upgrade are even earlier (12-15 months, or even up to 2 years, respectively).
Drawbacks of Leasing a Copier
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Fixed/obligated payments -
Depending on the type of lease, your company may be required to make continual monthly payments, even if business needs change. This can be most impactful for startup or small businesses, whose needs can easily fluctuate, within a year or two. Discussing future plans with a Sales Rep can help businesses avoid getting technology that they may outgrow, within a year or two. -
It can end up being more expensive –
In the long run, leasing generally ends up costing more, than purchasing the unit, outright. Even with FMVs, a lessee may pay interest rates that are similar to that of a normal loan.
The Benefits of Purchasing a Copier
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Tends to be cheaper -
In the long run, your overall cost will be less, when you purchase a copier. A company that is looking to minimize the amount of interest, within a payment, may choose to purchase this technology. -
No contract -
When a company chooses to lease technology, they are locked into a contract. -
Maintenance is flexible -
Leasing companies usually require that the equipment is maintained, according to their specifications, during the length of the contract. Companies that own the equipment can choose when to maintain their machines.
Drawbacks of Purchasing a Copier
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High initial costs -
Some businesses may not have the upfront funds to cover a copier expense, especially, if they’re looking to have a higher-end model with advanced features. Others may also find that the cost is too much to allocate, at one time, when they’re looking to diversify their funds, in other areas, to help grow their business. -
Having an outdated piece of equipment -
As mentioned earlier, technology advances quickly, and this includes copier/MFP devices. A growing business may find that Industry needs have changed, and want to refresh their technology in 2 years. When a company owns their equipment, however, the burden to sell, recycle or donate the equipment is placed internally. -
Maintaining standards -
Companies with multiple locations often prefer to have a standardized fleet, thus ensuring that the technology capabilities are streamlined. When purchasing options are not centralized, branches can end up having a mixed levels of expenses, as well as advanced or inferior technology. Standardized fleets can allow a company to move its devices, freely, from one location to another, as needed. Allowing each branch to freely purchase their own equipment can limit the organization’s ability to make decisions, based on volume, usage and functionality.
Things to consider before making a decision.
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The lease term -
Most lease agreements range from 3-5 years. The term can impact the interest rate and monthly payment. Typically, the longer the lease, the lower the monthly payment. However, overtime, you’ll typically pay more. -
Lease extensions -
Did you know that lease payments can be reduced, by simply extending your term by a few extra months? If cash flow is important, ask your vendor if you can configure the same copier for a 39 month lease, versus a 36. The difference may be a game changer. -
Lease additions -
Most leasing companies will allow additional equipment to be added to an existing lease. Lease terms may not change, but monthly payments will be recalculated. -
Early termination –
Sometimes, a company will find that they have outgrown their leased equipment, earlier, than expected, and want to make an upgrade. It’s best to ask if there are any penalties, if you choose to pay off the lease early, and, if so, what they consist of. -
End of term fees -
As stated above, there are two different types of leases (Fair Market Value and $1 Buyout). If you are not completely sure, which option to choose, make sure to gain clarification, prior to signing any documents. In addition, if equipment is to be returned, ensure to note which party is responsible for the shipping expense. Also, look for any underlying renewal clauses… You don’t want to be left with any surprises.
How do I know which option is best for my business?
Choosing to lease or purchase your copier is an important decision and it’s not a one-size fits all. Review the points, listed above, and consider your decision’s immediate impact, as well its future implications… How does it align with your financial and office workflow objectives? Still need some help? Here are some additional points to consider…
- Determine your organization’s needs. Ask your present or future vendor to perform an assessment on each department’s daily workflow.
- Go beyond the machine expense and learn about the type of service that you can expect to receive from your present of future vendor.
- Review the types of leases that are provided and decide which option will help you reach your long-term business goals.
- If you’re getting multiple bids, make sure that the machines being quoted are comparable. Less money may mean a lesser machine. Most importantly, make sure the technology being quoted from each vendor has matching features, accessories and capability.
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