Buying or leasing IT assets has been a long-standing argument for years with business owners, both large and small. Purchasing equipment means a higher initial cost and an inevitable future of aged equipment that you’ll have to deal with, but it comes with the appeal of tax incentives. Meanwhile, leasing entails less upfront costs with equipment upgrades every few years. But, leasing will be a costly option in the long run. Provided is a look at the advantages and disadvantages of both these options and how IT asset managers can choose the best option for their enterprise.
More often than not, proper IT asset or equipment management has been somewhat of an afterthought but really, it should be at the forefront of all IT purchase designs. IT asset managers have to ask themselves: How long will our enterprise use these assets? What kind of resale value will these assets have in three to five years? Questions of these nature must be asked in order to make an efficient purchase decision.
The first step is to develop a cost/benefit analysis comparing both leasing and purchasing, which would include the total lifetime cost of those assets, payment structure, frequency, tax benefits, life expectancy, remarketing and redeployment of retired assets, and finally who is responsible for the disposal of said assets. Next is determining if all the hardware and software along with licenses are included in the lease program or if there is an additional fee for these programs and services. Lastly, a well thought out maintenance program needs to be established. IT asset managers need to figure out if assets come with standard manufacturer’s warranty or if an additional purchase for service warranties will need to be obtained.
Leasing equipment is a smart way to get the equipment you need to run your business that tout low initial expenses and lower maintenance costs. However, the freedom you get from leasing equipment comes at a cost. If you’re leasing for a longer period, you will be spending more money in the long run compared to just outright purchasing the equipment yourself. Additionally, other drawbacks to leasing involve: fixed lease duration and less choice when it comes to choosing equipment.
When outright purchasing your IT assets there is a much greater initial investment, but you own the assets you purchase of course. Just like with leasing, there are tax incentives to consider that can have a large impact on your business. Depending on the equipment you purchase and the country you are operating from, there are some tax incentives for buying equipment. For the U.S., tax benefits for equipment purchase are outlines in the 179 section of the tax code. Additional, purchasing means these become fixed assets that help your business earn income. You’ll be able to recover the cost of buying through depreciation deduction.
But, disadvantages to buying involve budgetary restraints, which is the biggest consideration here in addition to proper maintenance and disposition practices. Needless to say, if the equipment is yours, maintenance and repair costs are on you. You can make a rough estimate of what it will cost to do regular, planned maintenance to your equipment but unexpected repairs or even replacements can get surprisingly expensive.
Deciding whether to lease or buy business equipment is a matter of weighing the pros and cons. Determine which option is most cost-effective for each asset you’re considering by calculating its net cost, taking into account the tax benefits and the resale value.
If you’re thinking about buying your equipment, don’t forget it might become obsolete, especially if it involves state-of-the-art technology or software. If you’re leaning towards leasing, make sure you’ll actually need each piece of equipment for the entire leasing period – or at least a large part of it. The key to making the right decision is understanding exactly what your company’s needs are and the purpose of the asset. Answering the questions addressed above will help ensure that you’re making the best choice for your situation.