If you’re investing in new office technology, your main goal is most likely to achieve increased efficiency, and correspondingly, decreased costs. Making the initial outlay viable, so that you achieve those eventual savings sooner, is something of a balancing act.

Business owners have an important decision to make in whether to finance new office equipment or purchase it outright, as the differences in cost and practicality can be significant.

Too often, availability of cash reserves is the overriding consideration when deciding whether to rent or buy new equipment. However, there are other factors to consider in order to make the best long-term decision.

The first step is calculating the annual after tax cost of both options. Both leasing and purchasing can offer tax benefits. Usually, lease payments are deductible as operating expenses. Ownership, however, offers a tax deduction through depreciation.

Next, it’s necessary to understand the impact of the timing of payments. This is done by a discounted cash flow analysis, which recognises the time value of money. As a basic example, the benefit of paying $1,000 over 12 months rather than now is obvious. In the real world, discounted cash flow calculations can be complex, and most business owners need to seek professional advice.

However, in most cases, such analysis will demonstrate that a cash purchase will work out to be more expensive than financing.

Then, there are other unique benefits to rental financing:

• Financing allows immediate acquisition of equipment, without down payment
• Payments are spread out over the working life of the equipment 
• Renting offers more flexibility at the end of the term. There is no residual value to pay; the renter can hand back the equipment and upgrade, continue to rent the equipment or offer to purchase it at fair market value.

The easy upgrade path to the latest technology at the end of the rental term can be extremely valuable. Consider that businesses that purchase equipment outright tend to continue using it beyond its effective life, even though newer equipment might offer significant savings.

What about bank financing?

Most businesses are better served if they don’t use their bank to finance new equipment. Bank leases usually have much more demanding initial requirements compared with supplier leasing arrangements. You also need to consider that banks include all lease/hire purchase liabilities when analysing the adequacy of their security. Consequently, your increased debt could have an impact on future overdraft/loan facilities.

Every business is different, and when a major financial commitment is involved, professional advice is essential. For many businesses however, leasing provides a simple, sensible solution to acquiring new technology with minimal impact on cash flow.