Reasons to Rent
Posted Apr 01, 2004 05:44 pm CST
Until last year, lawyers at Buist Moore Smythe McGee never thought twice about buying when they needed new computer equipment for their Charleston, S.C., law firm. But after they decided to replace about a third of their desktop and laptop computers last year, Phil Heim, the firm’s legal administrator, pushed to lease the equipment.
His argument was not financial, but rather that leasing equipment would force the company to upgrade its office technology on a regular schedule.
“We decided that we had a tendency when buying equipment to hang on to it for too long,” says Heim. “This way we make sure to have a predictable program for upgrading and keeping equipment current.”
Keeping current with new technology has become increasingly important, but buying new equipment every couple of years can be too expensive for the solo practices and small firms where almost half of U.S. lawyers work. According to American Bar Foundation statistics, 30 percent of all U.S. lawyers are in solo practice, and another 17 percent work for firms with 20 or fewer employees. So, in many cases—as with Buist Moore, a firm with 39 lawyers—leasing just fits a company’s needs or schedule better.
If a firm has enough cash, buying equipment outright is cheaper, and there are tax write-offs to consider. But there are advantages to leases in the short term.
“Every analysis we did shows that if you buy outright you save money over the long term,” says Heim. “But it’s not always the best option for your cash flow.”
The big advantage to leasing is that a lawyer does not have to plunk down a big chunk of change up front. And it’s not just computers and hardware that can be leased. Even some software, like West Group’s Prolaw accounting software and computer backup and storage services, can be leased.
“That means you can have positive cash flow in the first month,” says Dennis Kennedy, a solo practitioner in St. Louis. “You can have a fully equipped law office for very little cash up front.”
Ross Kodner is a lawyer and president of the legal technology consulting firm MicroLaw in Milwaukee. He says the key to smart leasing is to negotiate flexible terms.
Most leases are controlled by a master lease, but subleases can be made for renting different types of equipment. Though computers are usually obsolete at the end of a typical three-year lease, some equipment—like laser printers and networking gear—has a useful life much longer than that. With a sublease, some equipment can be had for a longer term and with a smaller buyout at the end of the term.
“As far as commercial leases are concerned, the customer is in the driver’s seat,” says Kodner. “There are no rules that the lessor can’t offer flexible leases; the customer just has to ask.”
Of course, there are risks in taking on a lease. The most problematic issue can be hidden charges such as transfer fees if another party takes over the lease, documentation fees to prepare paperwork, and other fine print. “I see a lot of litigation over what happens at the end of term of a lease,” says Joe Bonanno, legal counsel to the National Association of Equipment Leasing Brokers.
Bonanno warns that leases are also bought and sold like mortgages, so it is important to keep track of any side letters or agreements made with the original leasing company. “I can’t tell you how many lessees can’t find their side letter at the end of a term,” says Bonanno. “The people you made a side deal with in the beginning may not be the people you deal with at the end.”
There are other downsides to leasing, but if done right it can allow a small firm to have the same or even better technology than large ones.
“I think in the last year or so technology companies have been more focused on small businesses,” says Kennedy. “I think they’re much more willing to offer financing to small firms.”