Benefits Between Buying Or Leasing Equipment

Floor equipment purchasing options with proven ROI for custodial executives, part three.

Another important consideration in the equipment selection process is whether to buy or lease machinery. While leasing is almost always more expensive in the long run, it requires less money upfront and may be the best option for smaller departments looking to reduce initial capital outlay.

“Since the lease versus buy decision is largely financial, it makes sense to work with your finance department,” Peduto says.

In general, leasing is only an option for the largest, most expensive floor machines. Signing a multiyear lease for a $500 vacuum, for example, doesn’t make financial sense. For a $12,000 autoscrubber, however, there can be advantages, especially in situations where the equipment needs are urgent and capital dollars are tight.

An equipment lease is much like those used for cars. Users make regular payments to “borrow” the machine from a vendor for a contracted amount of time. On the upside, these payments are much lower than they’d be on a loan to buy the same equipment. Also, the arrangement allows for a user to get immediate use of the machine, rather than waiting until another round of capital expenses is approved. Also, while the user is typically responsible for maintenance during the lease, they are getting the equipment during the most trouble-free part of its lifespan.

At the end of the lease period, the equipment is returned to the vendor; the end user has no further financial obligation, but also loses any value left in the equipment. (The distributor or manufacturer benefits from any remaining value by selling the returned machine as used equipment.) Also, while organizations can usually write off some portion of their leasing fees, they lose the tax benefits of depreciating an owned asset.

Choosing between leasing and buying requires serious math. Managers need to evaluate the real costs for a piece of equipment, comparing the total expenses from start to finish for each option.

“On a lease, you really have to run the numbers,” Poole says. “You have to know all of the costs of straight acquisition, including maintenance, versus the contract cost of the lease. Putting the numbers on a piece of paper is critical.” 

BECKY MOLLENKAMP is a freelance writer based in St. Louis, Missouri.