Tech Equipment: Should You Buy or Lease?Phil Biundo
Tech Equipment: Should You Buy or Lease?
In order to keep up in your industry, there will come a time when your business will need to replace your obsolete IT equipment. Your success depends on up to date computers, printers, and networking hardware. So how do you go about replacing your existing equipment?
You need to first define what exactly your company will need to replace or add in order to stay competitive. Come up with a real dollar amount, and be sure to include everything you currently use in order to have an accurate assessment. Now that you know how much you might need to spend, it’s time to figure out how to pay for it.
When it Makes Sense to Lease
Proponents of leasing IT equipment point out that the initial expenses for doing so are low. This can be attractive for start-ups or businesses that are experiencing cash flow issues. The activation fee of a lease is often much smaller than the 20% interest you may be asked to fork over for a business loan to purchase new IT equipment. Your leasing company will often deliver and set up your equipment as part of the contract, so your business will experience little interruption when it is time to update.
Leased equipment is often the most up to date available, and will be updated every three years or so depending on the length of your contract. This will ensure that your technology is refreshed with minimal effort or follow-up on your part, and the leasing company can deal with the obsolete hardware.
The Cost of Leasing: Understand the Terms
Your leasing company will provide you with a leasing agreement with their standard terms at the outset. It is important to remember that the terms of any IT equipment lease are negotiable. Make sure that you understand your obligations for equipment maintenance, which could cost you in a long run.
Discuss the “What if..” scenarios with your leasing company representative, and make notes so that you know what to do if your technology fails. Do the math and make sure you have a clear understanding of what your IT equipment lease will cost you.
When Buying Makes Sense
Owning your IT equipment is a straightforward solution, and comes with the advantage of not having to deal with a leasing company whenever you are looking to procure more equipment. If you add up all of the replacement technology costs and it won’t negatively affect your cash flow, buying should be a real option.
If having the most up to date equipment is not necessary for your day to day business, you might save by getting the most possible life out of your IT equipment before you consider replacement. Likewise, you might save money if you or your staff is capable of setting up the equipment without the aid of outside help (the cost of which is often built into a leasing agreement).
The Cost of Buying: Obsolescence
No matter what, if you plan on purchasing your tech equipment, know that you are assuming the risk of obsolescence. There is just no real value in resale of obsolete equipment. Therefore, be sure that each item that you purchase contributes to your day to day operations to avoid getting stuck with unused equipment that holds no value.
Also, while a leasing company may offer you tech support as a provision of your contract, when you purchase your equipment you are on your own when it comes to tech issues. Consider adding the cost of outside tech support in anticipation of a few issues here and there.
Consider Tax Incentives
The tax advantages for leasing vs buying are very different animals. Make sure that your accountant knows how to deduct lease payments as business expenses, or how to write off the total cost of purchased equipment. These dollar amounts may be similar if you refresh your equipment every 3 years, but it’s a good idea to get a professional to run the numbers for you.
So, should you buy or should you lease? To figure out the best solution for your company, take a good hard look at your specific equipment needs and available finances. Come up with a detailed list of what your business uses every day, and compare the cost purchasing outright vs. a lease agreement. Finally, how important is it that your technology is up to date? Take a look at all of these factors, and the answer will become clear.