The next time you begin to consider acquiring technology gear like computers, servers, networking equipment or other items, you will probably be approached with a decision…do I lease this stuff or should I buy it? I would like to focus on some of the benefits of leasing and why it’s a smart idea. The head article in this October Edition from President, Ted Warner focused on the overview of leasing and Hardware-as-a-Service, but I want to get down to the brass tacks benefits of leasing. Here we go…
Should You Lease or Buy Technology Equipment?
- Leasing allows you to keep your network up to date. The reality of technology (and most everything manufactured) is that it eventually becomes obsolete…with technology especially, the equipment degrades all while the demands on the network increase. By leasing your equipment, you pass the financial burden of upgrading a network over to the leasing company.
- You’ll have a predictable monthly expense. With a lease, you have a predictable monthly payment. This allows you to turn your IT spending more into an operating expense (like a utility payment) and hold onto your cash…which gives your business more flexibility to re-invest those dollars when and where they are needed. This model will help you more effectively budget and plan for the future. And because this model leverages operating expenses, your lease payments are deductible based on your corporate tax rate.
- You pay nothing up front. Many small businesses struggle with cash flow and must be very careful when evaluating capital investments. Because leasing equipment typically requires minimal a down payment, you can acquire equipment without depleting you cash reserves.
- Leasing gives you the competitive edge. Leasing can allow your business to invest in better technology than you may be able to acquire up front with cash. For example, if you are needing to invest in a faster network that will give you speed to market, the infrastructure to give you that benefit can be quite expensive, but with leasing, a significant increase to the bottom line investment will only result in the slight increase of the monthly lease payment. A good rule of thumb for leasing is to figure that it costs about $33 per month per thousand borrowed…not bad!
- You can include soft costs (like labor/professional services) into the lease. The beautiful thing about leasing is that you can wrap costs into the lease that are not tangible…like the professional labor for a large IT project. This is a benefit to you because risk is once again taken from your business and placed on the leasing company. And depending on the leasing company, larger or smaller percentages of soft costs will be allowed into the lease…the higher the percentage of soft costs allowed into the lease, the better the situation for you, the customer.
- At the end of a lease, you have good options. The most common lease term for technology purchases is 36 months which is good because this period tracks with a sensible replacement cycle. But the lease term is certainly negotiable and in some cases it can make sense to tackle a longer (or shorter) term. At the end of a lease, you have a couple of options, you can give the equipment back to the leasing company, re-lease equipment and then you have brand new equipment (which is the main benefit of leasing). You can buy out the lease equipment based on the up front term of the lease (typically Fair Market Value) so that you own the equipment. Or you can continue leasing for a lower monthly fee (this would also be determined up front what the extended lease payment would be).
At the end of the day, leasing is a great vehicle for your business to be able to invest in technology to drive functionality into your organization for a predictable monthly cost. There are tons of advantages to leasing but it certainly isn’t right in every situation. If you have a smaller capital purchase to make and you have the cash, it may make the most sense to buy. But if you need to invest in technology across your business and are looking to create some rhythm to you equipment upgrades and performance, predictability and stability of the network is critical, then leasing is a great thing to explore!