You can’t help but notice that there has been a shift in recent years for us to become the consumers of things we were once obliged or wanted to own. We watch films on Netflix, listen to music on Spotify and the end game for the coming generation of autonomous vehicles is also likely to mean many of them are ownerless as well as driverless, as we summon cars only when we need them. As both individuals and businesses we rent software rather than own it and in the massive growth of coworking spaces we see many of the same forces at work.
The attractions of this approach are obvious, not least in keeping down the costs of things we may not want to keep in the long term and leaving ourselves free to make different choices in the light of rapidly changing circumstances. So, it’s no surprise that economic uncertainty is just one factor that has driven an increase in asset financing at the same time that we have seen a permanent change in patterns of spending and ownership.
An underused alternative
Yet organisations have a residually ambivalent attitude towards the idea of leasing, pigeonholing some products and services as lease-able and others as something that needs to be bought outright. In the former category we find vehicles and IT and in the latter, we find office furniture and fit-out.
Now, there are plenty of good reasons to own your own workplace assets. But it’s surprising that more organisations don’t consider leasing a fit-out. The traditional method of financing as a capital purchase has many advantages, but it is not always the right solution. Leasing offers an alternative that can be beneficial in terms of tax and spreads the cost based on a fixed budget which can help the business plan around regular monthly outgoings.
This has obvious benefits in terms of cash flow and credit but also allows the firm to think outside the box in other ways, for example by allowing it to upgrade space more readily, respond to change more quickly or even acquire a better and more expensive interior than it might assume was affordable. I don’t think you should underestimate this flexibility for organisations operating in a fast-paced business environment. This is the underlying force driving growth in the coworking market and there’s no reason it shouldn’t apply for office design and fit-out too.
Making the right choice
So, it’s essential to determine which is the best option for you. An outright purchase may be the best option while there are also several different forms of leasing to consider that may suit some organisations more than others.
The length of the lease or purchase needs to be weighed up against the quality, adaptability and durability of the products themselves and the projected needs of the business. The terms and conditions of the lease should also be considered, as there may be charges for damage beyond what constitutes normal wear and tear, or special charges that apply if the furniture is returned within the lease term. As always, it’s great to know all the options and get some advice to make the right decision.
In addition, the cost of capital has arguably been more affordable in the past than it is now and may even have been better than the terms offered by leasing. That is now less likely to be the case. In addition, the cost of furniture as an element in the overall cost of a building is likely to be relatively small. But that equation changes when you start to look at future fit-outs, dilapidation and refurbishment.
Life cycle is also an important factor. With products like phones and computers, you know in advance you’re going to replace them after at most two or three years. That may not be the case with a fit-out. While furniture may only be guaranteed for five years or whatever, you should have a perfectly reasonable expectation that a well-made product will last for ten or twenty years. So, it’s important to consider all the options and get some advice.