Lease or Buy State-of-the-Art Equipment

The new technology and its impact on decision making

Bruce Bryen, CPA, CVA

As dental laboratory owners know, using cutting-edge equipment can increase the speed of production. It also assists with providing more accurate products for the dentist and normally better pricing opportunities as well. Acquiring more dental clients because of the growing upside in the laboratory's reputation becomes possible as the equipment produces what the dentist needs more quickly and accurately. Technology is constantly upgrading and the production of faster and better equipment probably also means that the cost and the utility of these items become issues with each upgrade. Questions become those of affordability and the speed of each change in the technology, leading to the inevitable questions: Should the laboratory owner buy, lease, or wait for the next change in technology to take place? Cost versus price is an issue and buying versus leasing is an important one as well. Which is it going to be?

There are so many considerations that the owner will probably need to consult with his or her tax advisor, financial planner, and human resources contact. The tax advisor—likely a CPA with a lot of experience with taxes as well as working with dental laboratory owners—will give advice about taxes and cash flow. This person is probably an outside professional who has contact information with lenders and the equipment sellers. The financial planner may be someone who can discuss the positives of any projected outcome and what will happen with the additional funds that are created from the choice. The human resources lead will let the owner know about any potential for changes to personnel as a result of acquiring this equipment. The changes in technology and the cost of replacement will certainly be discussed between these experts and the laboratory owner regarding his or her needs and expectations.

The Impact of Progress

How long will the laboratory owner be satisfied with their decision as newer equipment appears on the market? For very expensive technology, this is the most critical of decisions. If such a large investment turns out to be a disappointing mistake, a competitor could obtain the advantage by acquiring a newly minted, faster, more accurate piece of equipment. With a lease, the owner has the opportunity to upgrade quickly and receive a replacement newer, quicker asset as the lease expires without the loss of time or money. The purchase of the equipment lends one to think about what happens with the loan made for the acquisition when newer equipment becomes available. Purchasing equipment is unlike the ownership of real estate, the value of which will probably increase over time. The equipment acquisition will most assuredly decrease in value over time as it is used and newer, more technologically advanced options become available. A comparison is similar to an automobile in that the equipment, like the car, loses value as soon as the car drives off the lot. This can create an untimely loss where an exchange is important because of the newer technology.

Many owners will think of the tax considerations as well. If that is important to the laboratory owner, a properly structured lease can give the same results as a purchase. Credit situations are important to the laboratory owner. Buying equipment with the use of a loan and a UCC1 filing certificate can cause a credit mark. The lease typically does not have any type of credit consideration once the lease is in effect. Of course, the lease and the purchase each have credit questions prior to their completion.

Making Careful Decisions

The simple answer is that each laboratory has a different financial situation. The trusted advisor or advisors to the owner should be consulted before making any decision involving large sums of money. An asset that is projected to have a long, useful life is an important component of the laboratory and will either add to or hinder its growth and reputation. With technology comes the prospect for improvement and better profits. This happens when the technology is properly applied and kept up to date.

About the Author

Bruce Bryen, CPA, CVA, is the principal in the firm of RKG Tax and Business Services, LLC, in Fort Washington, Pennsylvania.