Buying VS Leasing: Fleet & Equipment

Posted by Jesse Peters on Jun 20, 2019 10:00:00 AM
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Your fleet is likely the largest line item in your department's annual budget.  Before you read any further, stop and make a pros & cons list for leasing fleet vehicles and equipment. Seriously, make a list... We'll wait...

Now that you have a list, let's compare it with ours.

As we were developing our list, we noticed that the pro's column was rapidly growing with a fairly slim and stagnant list in the cons column. We know even the consideration of deviating from a cash purchase can seem and feel like a radical shift in your way of thinking — because it is! But we're here to help. 

The evolution of fleet management and the complexity it entails has created new purchase options beyond the traditional owned model. The financing models we now offer really boils down to a choice between Capex and Opex- but which is better for your department?

When does it make sense for you to buy, and when does it make sense to lease?

Capex vs. Opex Review

Before discussing which finance model is preferable, it’s important to understand the difference between the two and how they influence your bottom line. In the old days, if a department needed a new Upfitted public safety vehicle, the only option they had was to purchase the vehicle and equipment/technology up front and file the investment as a capital expenditure (Capex). By definition, capital expenditures cover any major investment (such as property, infrastructure, equipment, or software licenses) which will show up on a balance sheet, along with its depreciation. On the other hand, Opex consists of operational expenses, which are ongoing business costs such as rent, utilities, wages, and services. Because these are ongoing, Opex is reported as a profit and loss. While the Capex finance method used to be the norm for a fleet purchase, it created a barrier-to-entry for budget-tight departments wanting to take advantage of new technology. Today, with our help, you now have a choice.

But which is better?

There are times when buying technology equipment up front is the way to go. Budget aside, there are several factors to consider when deciding between a cash option vs. a financed package, such as resources to manage and maintain the system and room for growth. If your department has the resources as well as the budget to purchase up front, it’s probably a wise Capex investment. On the other hand, there are several departments that not only don’t have the capital to standardize/upgrade/refresh their fleet and/or technology, they also don’t care to manage their fleet or technology at all. With KELTEK's fleet, software, hardware, and basically everything-as-a-service available to you as a resource, many fleet and IT operations are now on the Opex side of things, and departments are preferring the freedom it provides.

On to the benefits...

  • Moving to an Opex model enables a department to use its available cash for other public safety activities, such as infrastructure development, defense, human capital, or research and development. Also, a department can save on IT resources as far as fleet and technology management, repairs, and upgrades; with an as-a-service model, that is all our responsibility.
  • Many CFOs today prefer Opex. Opex allows a department to write off the entire monthly expense of fleet and/or IT management as a day-to-day operating expense. With the Capex model, a department can only write off a percentage of the cost per year, based on a depreciation schedule of assets. The Opex model puts a department or municipality in a better financial position, as they’ll be able to take a larger deduction based on the amount accrued from the total number of monthly payments. Entities aren’t expected to derive value from an operational expense for a decade.
  • Using a KELTEK as-a-service package under Opex allows departments to scale their technology and only pay for what they need. For example, if a department needs to add users (units), they can do so with a simple phone call. Users are added immediately, and the increased cost for each unit is simply added to the bill.

At the end of the day, you have to keep your community and your department safe. The move to an as-a-service model with KELTEK has leveled the playing field for departments of all sizes by shifting several technology and fleet purchases from Capex to Opex, including the whole car! There are considerations to both owning and renting equipment, but as you can see, the Opex model has several advantages and is becoming the optimal choice for departments with budget and growth in mind.

"The Fleet as a Service program by KELTEK is everything a Chief or Sheriff could ask for. I can stop lying awake at night thinking through problems with my squad vehicles and the technology inside of them. If there is a problem I have one phone number to call or text. And I get a great set of reports each month measuring the health of each vehicle. I added an extra car to my fleet to drastically improve the the employee culture in my small department by providing take home cars for each officer. And it improved my departments call response time because my officers are now expected to respond directly to the call , rather than swinging into the department first. A win for me was to improve my departments fleet health so I could stop fundraising to my council and petitioning for added money or reallocating from other parts of the department's budget when unpredictable fleet costs were incurred. In the KELTEK FaaS program, these expectations were exceeded, and my department got so much more. I can see a day where the majority of department are seriously considering the KELTEK FaaS program to build predictability into one of the most unpredictable parts of my department - my vehicles."  - Nate Peterson, Chief of Police, University Heights, Iowa Police Department

So that slim list of con's I mentioned previously, well here they are:

  • You don't own the vehicle or equipment
  • You are obligated to make the payment even if you are not using the equipment
  • There can be early termination fees
  • Availability of products

Number one on this list of cons, is something we covered within the benefits section.  No you do not own it, but that can be seen as a positive point since you are not taking on a new debt AND it's not your responsibility to keep serviced and troubleshoot issues when/if they arise.  As far as number two in the list, you will be using the equipment, it's pretty essential you have a car to carry out your job duties effectively, not to mention since your up front investment is so much lower, it can allow you to scale your program as you need.  When you read Nate's testimonial you can tell there is no way he would want to cancel, so that takes care of number three.  When leasing from KELTEK we order all products proactively, and even have some in stock, therefore waiting for product availability is a responsibility shifted to the Lessee, one less thing for you to worry about. 

If you have more questions about our FaaS program please take the time to view the video below, or reach out directly to one of us at KELTEK!