As a small business owner you scrutinize every line item in your budget, and technology investment is often one of the larger expenses. Cash flow can affect whether you choose to lease or buy equipment, but there are other factors to consider before you choose one path or the other.
If your business depends on keeping up to speed with the latest technology, you will probably want to buy rather than lease. Most lease contracts lock you into a certain time frame, and you may be unable to update your equipment fast enough to keep up with business demands. Leases typically last for three years, and by that time the technology may be woefully outdated. Even a one-year contract can be too limiting for fast-paced companies, so look carefully at your long-term technology strategy before you sign a contract that marries you to a certain technology.
Companies that have technology at the core of their business should also look at IT investments in a different light than those that simply use technology to operate. For technology-based companies, IT is considered a major business asset. In this case, investing a large sum in IT equipment makes sense if it is crucial to the growth and success of your company.
For other types of businesses, leasing computers and other office equipment is a good option if you want to keep your cash flow steady. If you don’t need the latest and greatest technology, leasing allows you to attach a fixed cost to your IT investment. What’s more, maintenance and support are often included in the contract, so you don’t have to worry about having someone on staff to take care of the equipment, and you can minimize the possibility of surprise expenses if something goes awry.
There are two basic ways to lease equipment. You can lease to own, which is a way to finance the equipment over a period of time, at the end of which the equipment is yours. The other leasing option is to rent the technology through monthly payments.
Either way, you want to look at your investment over the long term to see how much the lease is really costing you. Prices for equipment such as computers have come down significantly in recent years, and you might be paying a lot more to lease a computer, for instance, than it would cost you to buy it outright, even if you factor in your estimated maintenance and support costs.
On the other hand, you may have the same opinion about leasing IT as some people do about leasing cars: by the time the lease is up, the equipment will be rusty and outdated and you might as well trade it in for something new. However, even if leasing costs your company a bit more, you may decide that it is worth the money to have a fixed IT cost and new equipment every three years.
Finally, the decision of whether you should lease or purchase equipment will also affect your company’s tax situation. Buying IT or leasing to own can be easier to write off, so you may want to talk to your accountant about the various financial ramifications.
Before you make a lease or buy decision, figure out your company’s long-term IT investment strategy to determine what’s right for your organization. Talk to potential vendors about their leasing options and do some research on current market prices so you know if you’re getting a good deal.
Should you decide to buy, keep in mind that while most recognize that technology advances at a rapid pace, many small business owners neglect to plan for their technology becoming obsolete. Read Anticipate Obsolescence When Planning Your Technology Investment Strategy for some important insight.
Scarlet Pruitt is a freelance writer and business consultant based in San Francisco. She has covered business and technology for publications in the U.S., Europe, and Latin America.