Strategy

Leasing of Office furniture?

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Leasing is popular, both with business users and consumers, especially when it comes to costly goods. There are various forms with their specific characteristics. Sometimes the different forms are mixed up or even used incorrectly. The leasing market is growing and expanding to other sectors. What opportunities exist, for example, for office furniture?

First, a brief explanation of “leasing. Leasing usually involves physical assets/business assets, usually vehicles. That can be a car, a bulldozer and even a train or plane. But increasingly it also involves other (cheaper) assets, such as a desk (chair) or bed.

Lease (or leasing)

In fact, leasing is a form of credit in which the lender purchases an asset and fixes it in a contract for a pre-agreed period of time and makes it available to the borrower (the user) for a fixed fee.

Three parties

Leasing involves at least three parties: the customer, the supplier of the good or asset and the leasing company. The arrangement is set out in a contract. Suppose your company is growing and you want to lease an additional crane truck (as a customer/user). Then you will first have to choose it from your preferred bulldozer manufacturer, e.g. Caterpillar or Komatsu. Then you inform a leasing company. This can be a department of a bank or another specialized vehicle leasing company (e.g. Beequip). Together you agree on the terms and lay them down in a contract. The leasing company then buys the vehicle from the manufacturer. The vehicle is delivered to the customer.

Purchase option

This leasing contract should also include an option that gives users the chance to buy the leased good/vehicle at the end of the process, without obligation, at a price (the “residual value”) set at the conclusion of the contract.

Leasing or hire-purchase

If there is no purchase option and the ownership cannot be transferred to the customer, there is a lease or rental agreement. But there is a variant that is almost equivalent to lease, namely hire-purchase. Here the ownership does pass to the customer after he has made the last pre-agreed payment on time.

Why lease?

The easiest and most common answer is: because the purchase is usually (very) expensive or sometimes even not possible because of the high (one-time) costs. It may also be that you only need the vehicle temporarily (few years -lease- or months -short lease). That more and more nuanced arguments can also play a role will be discussed later.

Forms of lease

There are various forms. The most common are: Financial and Operational Leasing. Within the latter you will also find sub-forms such as Short Lease and Occasion Lease.

Shortlease is a form of operational lease with a short, flexible lease period. Shortlease is flexible and can be terminated after a period of two months and is the interim solution between renting and leasing. Occasion lease involves goods that have already been used.

If the user is a consumer, it concerns Private Leasing. A market that is growing substantially. In 2014 only 3 percent of the number of business lease contracts consisted of private leasing, in 2019 this had increased to 20 percent, according to figures from the Association of Dutch Car Leasing Companies (VNA).

As for ownership, take note that this concept has two components: legal owner and economic owner.

Financial lease

Financial lease is actually best thought of as a loan. You buy a car and pay it back to the leasing company in installments. On this loan you also pay interest and this is usually between 10 and 15% or even higher.

A calculation via a leasing company website: suppose you want a company car of €49,000. It will cost you approximately €960 per month (60 month term). After this period you will have paid €57,600 or €8,600 in interest (17.5%).

With this form of leasing, the lease car appears on your balance sheet immediately, because you are now the economic owner. Only at the end of the lease contract, when all the instalments have been paid, will you also be the legal owner. This means that after that, as a legal owner, you have all control over the car and are the full owner.

Operational lease

Operational lease is most comparable to renting: Suppose you want to lease the same company car operational. But it can also be an agency. Then the leasing company buys car and it is owned by the leasing company. The business customer can use the car and pays periodically (usually monthly) for the use to that leasing company.

What does it cost? The car in the operational lease costs (based on 60 months and annual 10,000 km) about €575 per month, it will vary a few euros per leasing company. Do you drive more kilometers or want a shorter term then the monthly amount goes up.

Leasing office furniture?

Although the offer was there before, we see through corona that working from home has increased considerably and with it the need for availability of office equipment and flexibility in its use. The market is therefore also growing strongly, since it concerns hundreds of thousands of new (home) workplaces that need to be furnished.

New fast-growing parties such as GoWorkWize have dived into this market and offer organizations a platform that allows their employees to easily arrange the things they need to work from home themselves (usually at a predetermined budget per employee). It is an interesting option for companies with people in positions that do desk work and can also do this from home.

Employees can order not only their cartridges and erasers on such a platform but sometimes also make a choice between buying an office chair or using it temporarily. The tipping point between one-time purchase and monthly lease is usually around 30-36 months. After that, buying is cheaper, although there is no warranty or maintenance service attached.

If you are looking for low monthly costs, flexibility and a guarantee on the office equipment, then leasing is a convenient form. Although spoken of as a lease, it is a rental, where at the end of the period of use the goods are returned to the lessor. But there are also companies (eg Alvero) that offer “real” operational lease, with the option to purchase.

Maturities are also sometimes shorter than for vehicles. Although Zaak, a provider of mobile offices for in the garden, also quickly assumes 60 months.

We see the terms “lease” and “rental” used interchangeably in communications about this. If you eventually want to buy the used goods, make sure that the lease/rental agreement includes the option to buy.

Which option is best?

There is no one-size-fits-all answer to this and it depends on your situation and wishes. The variables that come into play are:

  1. Duration: Do you only need a vehicle or a home office for a short period of time?
  2. Ownership: Do you eventually want to become the (legal) owner and do you opt for financial lease? Or are you looking for (short-term) peace of mind and flexibility, so operational lease of the asset, including services (such as maintenance, insurance and taxes)?
  3. Liquidity: do you prefer to use the (scarce) liquid assets for your primary business processes then renting or operating lease for a (small) monthly amount is more interesting than buying. If liquidity is not an issue and you need the asset for a long time, then buying is usually more favorable.
  4. Finally, there is the tax aspect: is it beneficial to have an asset on your balance sheet or not?

To conclude, determine together with your bookkeeper or accountant what the best option is and then decide whether you want to lease and if so, what form suits your business situation. And if you want to become a provider yourself and your organization sees opportunities to offer lease products. Please feel free to contact us to spar.

Posted in Strategy and tagged .

Auke van Stralen

Auke has been developing services for long-term subscriptions and contracts for over 25 years. He has done so in various management positions for listed companies in telecom, energy and waste. He continually strives to add value, so that both clients and companies benefit.

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