Investing in specialised test equipment can carry risks for companies as it is not always possible to accurately predict when equipment will be needed or how much will be required – projects can often be subject to change at short notice and the technology being tested can evolve quickly.
While the rental market for test & measurement is growing, one company, a leading supplier of test & measurement equipment, says that most companies are still looking to purchase their test equipment outright.
"For many larger companies the 'murky world' of corporate finance will dictate whether they buy or rent test equipment," the spokesperson suggested. "They will look to use this capital expenditure to offset against their overall corporate tax bill."
From design and verification to installation and production, companies will need equipment at the right time but, according to industry research specialist Frost & Sullivan, test & measurement equipment is only used between 15-to-20 per cent of its life, leaving a very expensive technology graveyard of unused investment prone to technological obsolescence.
"Nobody wants to purchase an expensive stock of equipment only to find that in a matter of months the technology has moved on; the solution has become obsolete and the investment has been wasted," explains Acris.
There are certainly a number of pros and cons when it comes to renting or buying equipment.
An interesting point raised by the test & measurement company spokesperson interviewed for this article was that while renting seemed a very logical thing to do when it came to acquiring test & measurement equipment most companies, around 90-95 percent, still wanted to purchase the equipment outright.
The spokesperson suggested that, "It's very difficult to instigate the rent v purchase conversation with a customer. For many, some of whom spend a fortune on test equipment, you'd think renting or leasing would be the more logical option, but for most their accountants and tax advisors determine the business decision."
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"The key question to consider is what timeframe do you actually need the instrument for? It can be a false economy to commit to the purchasing or leasing of an instrument because it may be needed in the future." George AcrisProbably the most important benefit when it comes to renting is that you will be able to get hold of equipment without having to pay the full cost of the product up-front.
For larger companies that might not be an issue but for smaller to medium sized business borrowing money or using limited liquid assets could mean financial trouble going forward– cash flow remains key to most businesses. Why not pay for equipment over a period of time especially when interest rates are at historically low levels and deals can be fixed?
As an option renting provides companies with more control when it comes to meeting monthly payments from their monthly income.
"Renting rather than buying is probably more suitable for start-ups," the spokesman from the test & measurement company suggests. "If I can use this analogy, for many the runway may not be long enough to achieve take off, they're 'too heavy' and need a longer runway. If that proves the case they will prefer to focus limited funds on maintaining operational expenditure rather than spending it on what could be perceived as risky capital expenditure."
There are certainly some tax disadvantages to not owning the assets in your possession outright, especially when it comes to capital allowances, and in some cases renting or leasing can prove more expensive than if you were to buy the assets outright. Check the small print of any agreement as businesses can find themselves locked into inflexible or long-term agreements, which may be difficult to terminate.
These are certainly issues that need to be taken into account and Acris urges companies to adopt what he calls a 'smart approach' when they come to look at the options available to them.
"The key question to consider is what timeframe do you actually need the instrument for? It can be a false economy to commit to the purchasing or leasing of an instrument because it may be needed in the future. By the time the next development project comes around, the instrument you own may not support the right standards, offer sufficient performance or may in some other way fall short of the new requirement," Acris explains, adding, "if that is the case rental can provide a great tactical option to get hold of a test instrument quickly with no long term commitment."
The spokesperson for the test & measurement company said that renting was certainly being considered more by larger companies.
"More are turning to rental agreements when equipment is urgently needed, whether that is to meet short term peak testing requirements or while they wait for the purchase of equipment to be authorised, or because they have used up their capital allocation in that financial year."
Many rental companies are able to offer attractive financial options including Rent-to-Buy, where a unit can be rented for a period of months and then converted into a purchase or a lease.
"Whether that works for the company will obviously depend in its tax arrangements," suggests the test & measurement spokesperson.
"From our experience rent-to-buy suits companies that need the test equipment now but do not have the budget available in the current financial year or know that sign-off will take months to go through. It allows companies to pay a fixed amount to rent the equipment for at least six months then return it, convert to a lease or buy it outright at the end of the rental period," explains Acris.
These kinds of arrangements are usually offered in conjunction with the Original Equipment Manufacturer, which means that the specifications of the equipment can be agreed together, with the rental company buying the instrument and providing the customer with the flexibility to decide what to do later.
Different leasing methods are also available: finance leases, operating leases and operating leases with services will enable companies to only pay for the equipment while they need it, have no upfront costs and have the flexibility to upgrade the equipment in the future.
An interesting and increasingly popular option is buying certified pre-owned equipment from reputable sources like the manufacturers themselves or rental companies who are able to offer used instruments at a discount.
According to Acris, "These instruments are inspected and refurbished according to a rigorous programme. They undergo electrical and functional tests, firmware and other software is updated and they are given a full internal and external clean."
The key as to whether you purchase, rent, lease or buy certified pre-owned equipment is that you need to take a strategic view. Sourcing expensive equipment costing tens of thousands of pounds should ideally be a strategic decision for a technology business, while keeping it maintained, calibrated and ready for use will also be an ever-present concern.
