Buy versus lease. For most, hearing that phrase evokes a car purchase, but for more and more small business owners that term applies to computers.
It used to be that one’s first instinct would be to buy. Sure, you think, you can use the machine for as long as your want and you own something.
Sounds good, right? Well, not so fast, says Adam Braunstein, senior research analyst at the Robert Frances Group. There are several reasons to consider leasing instead of plunking down cash for an outright purchase.
Taking baby steps with capital
Leasing prevents paying out so much capital upfront. This can help a company’s cash flow management, particularly a start-up or rapidly growing company. So, instead, the cost of having the computers becomes an operating expense.
Another financial advantage is that by leasing directly from a manufacturer or vendor, a small business owner needn’t go to a bank or venture capitalist for a loan -- with all the paperwork, business future strategy, and red tape that entails. “Leasing provides them with operational flexibility that they don’t get from traditional sources if they have to pay cost for something,” says Irving Rothman, president and CEO of Hewlett-Packard Financial Services. Most small businesses are wise to preserve a revolving line of credit for inventory and customer receivables, according to Joseph Pucciarelli, research director for pricing and leasing evaluation services, at IDC, the Framingham, Mass. research group.
Keeping up with technology
The usual lease runs about three years, which is about the same time that technology usually gets upgraded. Leasing computer equipment "pushes you into more structured refreshing of your technology,” says Lars Mieritz, an analyst with Gartner, of Darien, Conn. That way, a company isn’t caught behind the times, hanging onto an out-of-date computer or operating system.
Leaving the patch work to someone else
Since many small businesses don’t exactly have a huge IT staff, they can’t spare anyone’s time -- much less the money that their time is worth -- to tinker on computers to get them up to speed. “When you own a system, the biggest cost component is patching, update support and warranty issues. All the administration and effort to ‘keep this thing running’ far outweighs the cost of the system,” says Braunstein.
He figures that for a $700 PC purchased, about 15-20 percent at most is the total cost of ownership -- and that’s if you have great support.
When you lease a computer, the company providing you the leased equipment is the party forced to always keep up with the latest developments -- leaving your company to focus on its primary business. “We are always improving individual components,” says Mike Maher, a spokesman for Dell Financial Services, which leases computers. If a company has a lease agreement, they can upgrade technology a lot easier and a lot quicker.
You don’t depreciate me
Computer equipment depreciates rather quickly -- and it’s no fun pouring one’s money into an asset that loses value in order to update it, especially if you're a struggling small business.
With the getting of something new one must also consider the getting rid of something old. Throwing out a computer isn’t the easiest thing. “The disposal has to be done in an environmentally appropriate way,” says Rothman, “so that the EPA [Environmental Protection Agency] doesn’t come knocking on your door.” With leasing, the company you have the lease with takes care of disposal for you and even helps get your sensitive company information off the machine. Unless you are very savvy, you’ll really need a professional to wipe that slate literally clean.
If you buy computer equipment, there's arguably some value left in that old piece of machinery, but just how much can vary. “You would be lucky to get three percent when selling it to a reseller," says Braunstein. "However, you can get seven percent of your original expenditures if you wipe it clean and put it on eBay.” But, as a small business owner, is that exactly a good investment of your time? For most small businesses, the answer is, "No." “They’re concentrating on growing the business,’ says Rothman.