Updating and Managing Your Technology: A Primer

Buy or Lease?

As quickly as technology becomes obsolete, it sometimes makes sense to rent instead of buy your next round of upgrades. You can rent or lease most kinds of office technology, including computers, printers, copiers and phone systems. Here's how your options stack up:

Leasing
If you're like many small businesses, you're willing to lease costly technology that's likely to become quickly outdated. Leasing lets you get higher-end, more costly gear while reducing upfront outlays. Monthly payments will also usually be lower than those for credit-purchased equipment. Maybe most important, however, you're transferring the risk of obsolescence to somebody else. If that high-end PC is a clunker by lease's end, just hand it back to the owner and get a new model. Check the terms of your lease carefully. Scrutinize your options for the end of the lease. You may be able to buy the equipment for a small additional fee if you want to.

The ability to have the latest equipment is leasing's number-one perceived benefit and you'll have predictable monthly expenses. With a lease, you have a pre-determined monthly line item, which can help you budget more effectively. Many small businesses struggle with cash flow and must keep their coffers as full as possible, and leasing means you won't have to invest cash up front. Because leases rarely require a down payment, you can acquire new equipment without tapping much-needed funds.

The downside of leasing is that you'll pay more in the long run. Ultimately, leasing is almost always more expensive than purchasing. For example, a $4,000 computer would cost a total of $5,760 if leased for three years at $160 per month, but only $4,000 (plus sales tax) if purchased outright.

And you're obligated to keep paying even if you stop using the equipment. Depending on the lease terms, you may have to make payments for the entire lease period, even if you no longer need the equipment, which can happen if your business changes.

Buying
Buying your equipment costs more upfront. If you're buying on an installment plan rather than paying cash, monthly payments are usually higher. It may be comforting to know you own your equipment rather than rent it, but you may find yourself with an out-of-date machine right as you put the last check in the mail. One of the benefits of buying is that it's easier than leasing. Buying equipment is easy--you decide what you need, then go out and buy it. Taking out a lease, however, involves at least some paperwork, as leasing companies often ask for detailed, updated financial information. They may also ask how and where the leased equipment will be used. Also, lease terms can be complicated to negotiate. And if you don't negotiate properly, you could end up paying more than you should or receive unfavorable terms.

When you purchase equipment, you call the shots regarding maintenance. Equipment leases often require you to maintain equipment according to the leasing company's specifications, and that can get expensive. When you buy the equipment outright, you determine the maintenance schedule yourself. Buying equipment is also tax deductible. Section 179 of the IRS code lets you deduct the full cost of newly purchased assets, such as computer equipment, in the first year. With most leases favored by small businesses--called operating leases--you can only deduct the monthly payment.

The disadvantages of buying equipment is that the initial outlay may be too much. Your business may have to tie up lines of credit or cough up a hefty sum to acquire the equipment it needs. Those lines of credit and funds could be used elsewhere for marketing, advertising or other functions that can help grow your business.

And eventually, you're stuck with outdated equipment. As mentioned earlier, computer technology becomes outdated quickly. A growing small business may need to refresh its technology in some areas every 18 months. That means you're eventually stuck with outdated equipment that you must donate, sell or recycle.

Contingency Plan
You never know how much you depend on technology until you don't have access to it anymore. If a disaster strikes, you may not only suffer direct losses of data and hardware, but indirect losses due to downtime. But with some foresight and planning, you can avoid sustained downtime--and lost profits.

First, create a broad, holistic plan to ensure business continuity, not just disaster recovery. This plan should involve every part of your business, such as processes, operations, assets, employees and so on. Your overall goal: to prevent business disruption--then minimize it if it does occur. To this end, you should:

  • Conduct an impact analysis. How much downtime, loss of productivity, loss of data, loss of revenues and so on can your company sustain? For how long?
  • Develop a plan for dealing with mission-critical (revenue-impacting, customer-facing) functions and business-critical (back office, supply chain, e-mail) functions under various disruptive scenarios. Determine which business technologies to employ.
  • Educate your workers about the plan before a crisis occurs.
  • From time to time, revisit the plan to make sure it remains practicable and viable.

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