We’ve broken down the benefits and disadvantages of both options so you can make an informed decision, no matter which company you decide to purchase from.
BUYING
BENEFITS OF BUYING A FORKLIFT OUTRIGHT
Some businesses prefer to own their assets and run them for their natural life which in the case of a forklift can be anywhere between 10 and 15000 hours. They see it as a necessary cost to running the business and don’t mind the investment. Other benefits include:
- One-Off Payment- When purchasing a forklift, it is an upfront investment with delivery included. It requires no further payments, paperwork and work can begin immediately.
- Government Stimulus Packages - With changing economic conditions, the government often brings in stimulus packages where owning an asset can be an advantage, such as the current ‘Instant Asset Write-Off’
- Tax Deductions - When an asset is owned it is subject to depreciation methods for taxes.
- Resale -When you own a forklift you can make a return on your investment when you sell it. Although this is subject to its residual value (more on this below).
DISADVANTAGES OF BUYING A FORKLIFT OUTRIGHT
Unfortunately, there are many disadvantages of buying outright, which may be enough to cause buyers to reassess their choice.
- Loss of flexibility - When you buy a forklift it becomes difficult to be flexible to changing operating conditions and company needs.
- Low residual value - It usually only becomes evident when a company tries to sell a forklift that they have a very low residual value. The day it was delivered it would have depreciated around 60%. It then continues to depreciate over the next few years, in which case the book value far exceeds the market value of the asset.
- Fall Behind on Technology and Safety Innovations - The competitive market of manufacturers means that innovation and improvement of the technology and safety standards are happening at a rapid pace. Therefore those who own their forklifts have to pay more to upgrade their machines before they have seen the full benefit of their investment or fall behind competitors.
- Greater Responsibility for Legislation Compliance - In owning a forklift you take on all the responsibility of compliance around servicing and being fit for purpose. With leasing, most of these responsibilities are contracted to the supplier.
- Illegitimate Warranties - Many forklift manufacturers are offering longer and longer warranties, but most are not genuine factory warranties. Extra care is necessary to ensure the product is as advertised.
LEASING
*For this comparison we are focusing on the most common form of leasing, Fully Maintained Operational Leasing (FMOL)
BENEFITS OF LEASING A FORKLIFT
Due to the rapid pace of change, the market has looked to leasing or rental to provide the flexibility they need to remain competitive in challenging and changing markets.
- Flexibility - This is a big advantage, especially during unstable economic conditions.
- Upgrades - Long term leasing on new equipment provides the flexibility to upgrade units at the end of the term. With new technological advancements, having access to these upgrades can boost productivity.
- Contract Length - As you can choose varying contract lengths. Businesses can select a contract that takes into the business needs such as for a specific project, as well as cash flow requirements.
- Simplifies bookkeeping - As the costs are all-inclusive of delivery, maintenance and repair, the small monthly payments make budgeting easier and reduce paperwork.
- Legislation and standards - Generally the supplier is responsible for the maintenance of the units and compliance with legislation and standards. Reducing unnecessary hassle.
DISADVANTAGES OF LEASING A FORKLIFT
There are a few downsides of leasing but conducting due diligence on the agreement and supplier will negate risks.
- Termination - Where leasing with maintenance is involved the term of the contract is generally fixed for 3-5 years. Where the supplier does meet servicing standards it can be quite difficult to terminate the agreement.
- Overall Cost - Interest over a long period may result in a higher cost than if it was purchased upfront.
FINAL WORD
In today’s environment leasing appears to be the most favoured option. Most companies now tend to spend their CapEx funds and budgets on revenue-generating projects and material handling equipment is seen as an additional cost to doing business. Leasing provides a component of flexibility that allows end-users to take advantage of new technologies that are flooding the market at present. It also gives them the comfort to know that if their business requirements change a good supplier can work with them to provide the best outcome for them.
