The next time your business needs new computers, networking equipment or other technical hardware, should you buy or lease it?
If you’re looking for the latest, cost-effective kit for your business with a focus on managing your cash flows - then whether you buy or lease it can have an impact not just on your expenses but also whether you have access to the right tools to grow your business.
Beyond just weighing up the expense, you’ll need to consider the current state of your cash flow, what support options are available in any agreement you get, and what tax deductions are permitted, plus are you able to choose exactly what you need.
Most businesses that take the leasing route do so on the premise that they will get access to the latest, most up to date hardware.
Computers and other tech equipment eventually become obsolete, they often have a relatively short product lifecycle, with manufacturers regularly updating models with new features and functions.
With a lease, you pass the financial burden of obsolescence to the equipment leasing company.
Often a leasing company will have access to a wide range of products, specialising in particular brands or niche technology.
Normally a company gets the choice to select hardware that fits the nature of its business with the flexibility to mix and match different devices.
Leasing enables a small business to acquire specialised technology that it may not have been able to afford to buy outright, especially at an early stage of development.
With better equipment available at an early stage of development, you're able to keep pace with more established competitors without having to wait for certain financial milestones before purchasing hardware.
A lease agreement means a predictable monthly expenditure and no up-front payments.
If your business is restricted in its available lines of credit, a lease means not having to tie up much needed funds for growth. Those lines of credit could be used elsewhere for marketing or other functions that can help stimulate growth.
If your business is going through a growth phase there is an inherent risk in buying rather than leasing if the demand falls back to historic lower levels, using up limited cash reserves for assets that you are not getting the benefit from.
Or in the rush to fulfil a need you end up buying equipment that was the best available at the time for what you could afford, which may not properly meet all your needs. There is also the issue that you may have to maintain or repair the equipment yourself, which can be costly or impractical.
The equipment that you buy can lose considerable value over time - hardware depreciates quickly and may become obsolete after a few years, which may require a further investment to replace it.
From a financial perspective, there are tax deductions allowable on leasing as it is considered an operating cost, so you can write it off against profits, something to refer to your accountant on and check against your Annual Investment Allowance.
Typically, the leasing company requires the leasee to insure the hardware. They need to protect their investment from damage or loss caused by such things as fire, flood and theft.
So, it is important to check what is required, if you already have a business insurance policy that provides possibly covers your office equipment or if you need to provide further cover to satisfy the leasing company.
Leasing companies often provide a comprehensive warranty that is standard on all products, plus optional Accidental Damage. The cost of the cover can be added to the lease payments to spread the expenses of the insurance over the lease period.
For technology that is outdated quickly, you have to decide if it is worth continuing to use it, repair it, store it or sell it as time goes on.
One drawback with a lease, remember though you don’t own the equipment. But, often a leasing company may offer a buy-back or trade in deal at market prices that would be calculated typically 90 days before the end of your lease agreement and that needs to be discussed and agreed in advance.
You'll need to consider how much a lease deal will cost you in the long run, compared to purchasing hardware outright and that you fully understand all your obligations when it comes to payment terms over the lease period.
Why tie up cash in a purchase when you could use that money to establish or grow your business?
Check that the supplier can bundle your leasing deal with an effective IT support plan, to keep you and your company productive and downtimes to a minimum.
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