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To Buy or Not to Buy

The Question of Leasing or Purchasing

By Amber E. Watson

Investing in a large format printer requires time and thought. Not only does new equipment require a significant financial commitment, but it also impacts services offered and bottom line. There are many factors to consider when making a capital equipment purchase, and different scenarios in which it makes sense for a print service provider (PSP) to lease.

 

The Debate

When it comes to leasing versus buying, there is no clear cut answer, but there are tips such as that from Joe Dawson, senior director of sales, Roland DGA Corporation, who advises PSPs to first consider the length of time the equipment is needed. “If the equipment is going to be in production over a long-term period, purchasing is usually the best option. If there is a short-term need, such as accommodating a specific high-volume job for one customer, then leasing is typically the best choice,” he says.

 

Rapid changes in technology and the ability to keep up with equipment upgrades is also an important consideration. “If the equipment serves your needs for five to seven years, then purchasing is the right way to go; if not, leasing makes the most sense,” adds Dawson.

 

There are also tax considerations, including significant benefits through Section 179 of the tax code. Dawson explains that Section 179 allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment and off-the-shelf software as long as the equipment qualifies for the deduction in terms of the dollar amounts involved. The equipment must be placed into service in the same tax year that the deduction is taken.

 

“Technology on these machines will most likely be upgraded every three to five years, PSPs should be of the mindset that their equipment is more like an employee there to do a job for a certain amount of time,” suggests Todd Verebey, director of finance, sales, EFI.

 

Lou Piermarini, director, Mutoh Financial Services, cautions PSPs against the idea that paying cash is a smart way to acquire a printer. “Let your hard earned cash work for you,” he says.

 

Lease financing is appealing in many cases. The benefits of using the printer are the same whether a PSP pays cash or finances, but paying cash depletes valuable working capital. On the other hand, financing allows PSPs to preserve working capital and receive the same benefits from a new printer purchase.

 

Piermarini shares that per Dun & Bradstreet, a leading source of commercial information and insight on businesses, proper use of leverage increases a company’s return on asset and operating income. Financing a printer purchase provides flexibility, hedges against obsolescence, and helps form a new strategic partner for future equipment purchases.

 

Leasing Flexibility

Manufacturers agree that due to the economy, leasing activity overall has increased over the last 12 to 18 months, especially with banks tight on lending. As spending confidence strengthens, Piermarini expects financing to steadily increase. Dawson agrees, “Leases still appear to be more flexible with respect to cash-down requirements, and also allow consumables to be added, which helps improve cash flow.”

 

Many PSPs look to local banks for financing first, however, several equipment manufacturers now offer competitive rates for financing and are worth consideration. “Being strategic with one’s debt is wise,” adds Verebey. “External financing directly with the vendor is often a smart strategy.”

 

When Purchasing Profits

Sometimes a PSP begins with a lease, but ultimately decides it makes more sense to purchase. This was the case for Active Grafix, a 3,500 square foot shop located in Mesa, AZ.

 

Colin Davis, owner, Active Grafix, shares that the shop leased with the option to buy its first printer, thinking it would save money. “After paying a large sum at the end of the term, we decided to buy our next device.” Mutoh ValueJet 1614 and ValueJet 1608HS printers are used in house. “Financially, we have a slightly lower payment after deciding to buy, and we look forward to owning a printer outright at the end of the term,” he adds.

 

Davis plans to purchase again in the future. Depending on the rates and specials, he says he will consider leasing again, but admits the deals will have to be significant. “After a printer fits into your workflow, it makes it hard to switch out and get a new one after all the profiles are built and color corrected,” he notes.

 

What Works Best for You

In the end, it comes down to what makes the most sense for you. Leasing allows flexibility, while purchasing may actually cut costs in the end. Many options are out there that allow for a positive rate of appreciation without breaking the bank.  

 

Jun2013, Digital Output

 
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