For small businesses, acquiring the IT necessary to allow your team to work as productively as possible can present a major financial burden.
When companies want to invest in business technology they generally have two options for financing these expenses. They can either purchase their machines and software outright, either by using existing capital or a business loan, or they can lease the equipment.
While leasing IT equipment is becoming more popular, the best option for you depends on your business’s individual circumstances.
Here are some of the most important points that you should when making the decision as to whether to purchase or lease IT equipment:
What is your budget?
Kitting out an office with new computers, and the necessary infrastructure to support that, can cost tens of thousands of pounds. For smaller and newer businesses, putting such a dent into your cash flow either is not possible, or represents too much risk.
If this is true for you, then you have little option but to lease your IT equipment. It is easy to find IT lease agreements where there is no initial deposit or premium to be paid, so there is little drain on cash flow. This can also enable smaller businesses to access top of the line computers that they otherwise could not afford.
That being said, if you plan to keep the same IT equipment for a long period of time, then it generally will work out cheaper overall to purchase the equipment outright.
The additional expense of leasing can, however, be justified if you can make a strong case that leasing is the only way to access machines that can support business growth in a way that inferior technology cannot.
How central is IT to your overall business?
Leasing is often used by businesses who need to stay on top of the latest technological innovations in order to compete. Not only does leasing allow businesses access to the latest machines without requiring enormous capital, but it can facilitate the frequent upgrading of IT.
If you have a well thought out IT strategy, you can take out leases for a timeframe that matches the rate at which innovation is surfaced. This can allow you to keep on top of innovations in a most cost effective way.
If you only use computers to use Office tools, the internet, and a few tried and tested programmes, then you will be unlikely to benefit from the flexibility of leasing. Well researched purchases will likely be of better value in the long run.
How much IT expertise is there in your business?
When you purchase your IT equipment you become ultimately responsible for its troubleshooting, maintenance and upgrading.
If you have a large fleet of computers, with complex software, and run off your own server, you will probably need at least one team member who is able to troubleshoot problems when they occur.
While many IT suppliers offer warranties and some forms of support, this usually means that tech problems get fixed too slowly, especially if the problem in question has brought your business to a standstill. An IT leader is needed, particularly if you have a complex infrastructure to maintain yourselves.
When you lease IT, the maintenance of the machines is the responsibility of the leasing company. In many cases you will not be allowed to troubleshoot hardware problems in case you end up damaging the computers further. This can suit smaller businesses who do not have a dedicated IT function.
How much do you want to experiment with technology?
Some IT providers allow you to lease machines on a very short term basis, sometimes for as little as 3 months.
Short term leases allow business owners to test out new types of IT without committing to expensive purchases. This can prove to be very useful for businesses in industries where innovation is rapid, and where staying on top of the latest technology is imperative to success.
It may also suit business leaders who are naturally curious about technology and how it can provide competitive advantages for their business. When purchasing IT equipment it is easy to suffer from “shiny new object syndrome”, where you lose motivation to use your existing machines to their greatest capability as your energy is focussed on what might be possible with newer technology. Leasing IT on a short term basis can help ease this curiosity.
Despite the seemingly never ending innovations in technology that have occurred in the last 10 years, there is still a lot to be said for the approach of “if it ain’t broke don’t fix it”.
Business owners who like to stick with tried and tested IT and instead look to invest in other areas of their business should look to purchase IT to avoid paying unnecessary premiums.
Don’t forget the tax implications of leasing
Leasing companies often claim that all businesses should lease their IT (and other) equipment as it is more tax efficient than purchasing it outright but they often over simplify the implications of this.
Lease repayments are tax deductible, as are outright purchases. Sometimes, depending on timing, if you purchase the equipment you will obtain the tax relief a lot quicker.
We at Bells would be very happy to discuss with you the pros and cons of both options so that you understand which is the most tax efficient before you make a large financial decision such as this one.
This is a guest post from Sam Maley, Marketing Director at Bailey & Associates. Bailey & Associates are an IT leadership consultancy who work with small to medium sized businesses across the UK.