Lease vs. Buy: What’s Best for You?
HOW DO you acquire equipment? Do you lease? Do you buy? Do you even have a choice?
Different types of organizations tend to approach the lease-buy question from different perspectives. Businesses use a variety of tools, like computing the net present value of leasing vs. buying and picking the option that maximizes profitability. Non-profit organizations—including government agencies, colleges and universities—are not as concerned with profit, but they do need to look at the impact on operating and/or capital budgets to make financially sound decisions. In some cases, the decision is driven by organizational policy, legislative guidelines or procurement laws, so the in-plant manager has little if any choice.
The reality is, in today's economic environment, in-plant managers face a tough sell to get approval to acquire equipment because they are, more than ever before, competing with core organizational purposes for funding. The chances of winning approval are greater if the manager can demonstrate a complete understanding of the implications of the various funding options.
Both forms of acquisition come with long-range concerns. A purchase ties up organizational resources in the form of capital funds. Equipment purchases are approved, in part, because they promise healthier returns than those of competing proposals. Justifications include revenue projections and, perhaps, cost savings; but if those projections and/or savings fail to materialize, financial performance suffers.
The long-term impact of leasing is more obvious. A lease creates a financial obligation that spans multiple accounting periods, and may affect the unit's budget for several years. And while leasing may not commit capital funds, the impact of projected revenue shortfalls on the operational budget is real.
Several factors should be considered when deciding whether to lease or buy an asset. Purchasing ties up capital and may force the organization to choose between competing proposals. Private sector managers are likely all too familiar with having to show how a piece of printing equipment can contribute to the overall financial performance of the company. In business, where funds are often borrowed to acquire assets, purchasing an asset can tie up lines of credit and limit access to operating funds.
Ray Chambers, CGCM, MBA, has invested over 30 years managing and directing printing plants, copy centers, mail centers and award-winning document management facilities in higher education and government.
Most recently, Chambers served as vice president and chief information officer at Juniata College. Chambers is currently a doctoral candidate studying Higher Education Administration at the Pennsylvania State University (PSU). His research interests include outsourcing in higher education and its impact on support services in higher education and managing support services. He also consults (Chambers Management Group) with leaders in both the public and private sectors to help them understand and improve in-plant printing and document services operations.