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Don't buy equipment, rent it
By William de Ora - #60

Renting provides the lowest cost because a trade-in value is already built into the repayments says William de Ora

Despite an increasingly competitive business climate where every operating dollar counts, many business owners still buy technology- based equipment outright rather than rent it.

This is absurd on several counts. It ties up valuable capital that would be better directed to more efficient, competitive operation of the business. Or if loans are required to fund such acquisitions, they come with their own disadvantages, including the liability they create on the balance sheet, not to mention high levels of interest
paid. Either of these options can cause severe budget spikes.

At the same time the equipment is becoming outdated day by day, reducing its usefulness. The money spent reduces in value as the equipment depreciates, leaving items that, also allowing for fair wear and tear end up being worth a tiny fraction of their purchase price.

It makes sound business and economic sense to rent such equipment rather than buy it - especially as the equity in the equipment is of minimal value in a commercial context.

Instead of drawing on essential operating capital and spending it outright on items that instantly begin to depreciate, renting allows the cost to be spread over the useful life of the equipment.

This enables the business operator to keep pace with the latest technology and avoid capital outlay on depreciating equipment while ensuring maximum productivity and efficiency.

The risks of ownership are removed, including costs of disposal (including sale at a loss) if the equipment becomes obsolete. Renting provides the lowest cost because a trade-in value is already built into the repayments.

Moreover, the entire solution can be acquired in a single hit and used immediately, rather than being bought piecemeal as funds allow. Renting enables faster return on investment; with cash purchases it takes much longer before the cost benefits match let alone overtake the expenditure.

Flexibility is another key benefit: equipment can be upgraded during the rental agreement or at the end of it.
Other options include extending the rent, making an offer to purchase at a low, agreed residual price - or simply returning the equipment.

Renting also helps provide several other competitive advantages, the main one being that the equipment earns its keep while it is being paid for. That's a far sounder strategy than paying upfront before any benefits are gained. At the same time valuable operating capital is freed to meet ever-present, more pressing demands.

Cashflow is also streamlined and more easily managed. Business equipment and associated items can be bundled into a single contract with a single, more convenient rental payment.

Because the payments are spread over the rental period, this aspect of expenditure planning is completely simplified. There is no down payment, GST is paid per month instead of in advance as a lump sum. Put simply, you pay as you use.

The rental payments can be treated as a 100% expense (like salaries, rent, phones) and are tax-deductible and more easily aligned to actual operating costs.

Unlike major capital expenditures which may need to be planned months in advance, rental arrangements can be implemented immediately.

Items most suited to rental include IT equipment like computers, peripherals and software, as well as photocopiers, printers, telecommunications equipment, security systems, medical equipment and the like. Others include furniture, service fitouts - anything that obsolesces rapidly and has to pay its way from day one.

When choosing a rental company for such items it is essential to ensure that they are a technology finance specialist with people who understand the aspects and options unique to this field.

The right organization can help greatly in helping its clients achieve optimum equipment rental solutions that see them effectively manage technological change while controlling and minimising unwarranted capital outlay.

For information on rental solutions you can contact
William de Ora on 02 9955 8888 or email William@take3months.com

William de Ora is the co-author of 'How to Grow your Business by Taking 3 Months Off

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