Should You Lease or Buy a Commercial Trash Compactor?

By Kenzo Kawasaki

Image courtesy pixabay

If you’re tired of dealing with an overflowing dumpster or are looking to stop throwing away recyclable commodities that other businesses are willing to buy from you, leasing or buying a commercial compactor or baler could be on your mind.  While you’ll have to invest a little time and money in selecting, acquiring and installing either, this is an investment that could quickly pay for itself.  It could also save you money every time your trash hauler comes to empty your dumpster, since both machines will be significantly reduce the volume of trash your business has to contend with month in and month out.  The question then becomes whether it is better to own or lease the unit?

To own or lease.  That is the question.

Both owning and leasing have pluses and minuses.  If you purchase a commercial compactor or baler, you will be able to amortize the purchase for years to come, significantly reducing the amount of taxes your business is forced to pay.  You also get to eliminate having to wade through a lot of legalese that is present on any lease.  Instead of having to contend with a variety of conditions and stipulations that are part and parcel of every lease, if you own it you get to use it when, where and how often you wish.  You also get to choose how often your unit is maintained.  The downside is if you or your employees break it, you get to pay to repair or replace the entire machine without exception.    

The path of lease resistance.

Image courtesy Picpedia

Because of the stipulations placed on any leasing contract, some business owners are hesitant to lease heavy equipment.  They realize that when you lease machinery, you don’t really own it so much as rent it.  This means having to read and understand the lease well enough so you can explain the limitations to your staff.  It also means shelling out a payment each and every month to the lessor for eight long years, along with any penalties assessed should you exceed the limitations of the lease. 

The upside of a lease is you aren’t forced to come up with a huge lump sum payment upfront.  Just as with a car lease, you pay a fixed amount every month.  At the end of the contract, you don’t own the equipment, but you also aren’t saddled with an old machine that could require a lot more maintenance than a newer model.  That’s because most leases also come equipped with built-in routine maintenance provided by the lessor.  Many leases even throw in the expense of transporting and installing the equipment, as opposed to buying the unit which will require the owner to pay both these expenses.

Thinking outside the dumpster.

Both owning and leasing commercial trash handling equipment have a number of merits:

      1.      Both buying and leasing means a smaller impact on your work-site that eliminates overflowing dumpsters and the added expense of having to pay your hauler to pick up more frequently.

      2.      Both also reduce the amount of vermin attracted to any waste container.

     

      3.      Increased tax deductions whether you lease, rent or buy, any equipment that assists in recycling is 100% tax deductible. 

      4.      Being able to turn some of your trash into cash by selling it to recyclers not only represents a competitive edge, it’s good for the environment as well.

      5.      Leasing can help you control cash-flow, since monthly payments are predictable.  It could also allow you to rent a more expensive unit than you could afford to buy.

Doing the math

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What’s the best way to calculate whether you should buy or lease?  Do the math first. 

      ·         Let’s say you’re looking at acquiring a $50,000 unit by putting down 25% and paying off the remainder of the balance at 10% interest.  That translates to a $12,500 initial installment with four annual installments of $11,830, after which you own the unit.  This does not include the cost of shipping and installation.  Nor does it include any maintenance costs.

     ·         The alternative would be to lease the same equipment for eight years at a cost of around $8,500 per year for a total outlay of $68,000.  While that sounds like a lot more money, in the end the difference isn’t as much as you might think if the lessor also agrees to throw in the cost of freight, installation and maintenance.  Plus, you won’t have to shell out $12,500 up front.

The best way to determine whether to lease or buy either a commercial compactor or baler requires a cash-flow analysis that’s better performed by your accountant, since it should take into consideration not only the costs, but the tax advantages as well.  In fact, any time you’re looking to make a large investment in your business’ future, you definitely want to consult with your CPA first.  To do otherwise is to make an uninformed decision that could come to haunt you down the road if cash-flow becomes a problem.

Kenzo Kawasaki is president of BC Hydraulic Services, a commercial trash compactor service company based in Jacksonville, Florida.