Should you lease or buy new IT gear?
Now that ultra-fast broadband is rolling out across Marlborough many business owners are looking to catch up on the overdue Information Technology (IT) upgrade.
We find that many business owners have (correctly) put off any decision around changing the IT tools until a clearer picture has emerged around the reliability and risk attached to the cloud based IT option. We are getting the "leasing" question put to us more often now, so we suspect the cloud technology is getting sorted.
Having made the decision to upgrade, which is best, lease or buy outright?
Actually the question is wrong.
Times have changed. The question should be………….Is there any reason why we should not award the try, oops I mean, not lease? (What about the Hurricanes win on Saturday night!)
The lease "option" is dictated by business strategy and recognition that computers (and the like) are consumables rather than assets.
By way of business strategy, we mean most businesses need an IT strategy! Yes, a 3 - 4 year plan that defines the need and the cost.
At the centre of the one page IT strategy is the recognition, by the owners, that a business must keep the IT stuff fresh. IT gear does not last forever and there is a hidden, but real, cost of putting off the inevitable.
Leasing forces the business owner to refresh the IT because leases expire after 3 or 4 years, at which point the business owner should upgrade the IT and renew a lease to match.
Outcome of leasing; every 3 - 4 years the business owner is forced to review the IT strategy, the IT gear is more likely to be up-to-date, the cash cost is paid monthly spreading the pain over the life of the gear, and IT is correctly treated as a business consumable.
What about the interest rate charged by the leasing company compared with the bank rate? We find that most IT leases are now modest in value given the cloud template, so the convenience of a lease offsets the modest dollar difference in interest cost.
But, you say, what about the GST and income tax outcome difference? There should not be a difference if you choose the right type of lease agreement! Take a deep breath then chose an "operating" lease.