This video compares the costs and commitments of leasing technical equipment rather than purchasing, and discusses the questions you should ask when evaluating a lease.
- [Narrator] One common way to distance yourself from the risk and upfront cost of owning a lot of technology is to lease your equipment. The positives and negatives of leasing seem pretty obvious to most people. You get the advantage of not having to pay out a lot of cash at once, and you get to upgrade your equipment more often. Not to mention, you have the benefit of making the repairs someone else's burden. But on the flip side, you will almost certainly pay more money for the equipment in the long run, and, depending on the type of lease, you may have nothing left to show for it at the end.
Add to that the binding terms of a multiyear lease, and you have the disadvantages pretty well summed up. So in review, it would seem that the advantages are mostly operational and the disadvantages are mostly financial. Lets take a closer look at an apples to apples comparison of the finances. If I spend $5000 on laptops and I get to depreciate the cost over five years, what does that really cost? Initially, it requires me to have access to capital, but I can transfer that five grand from cash to equipment, and the bottom line of the balance sheet doesn't change.
Well, almost. If you pay 7% sales tax, then you will shell out $350. Then each year, for the next five years, your business will be worth $1000 less as the laptops depreciate. So over five years, that's $5350 right? Wrong, of course. We haven't factored in maintenance costs yet. The average laptop lasts about four years under normal conditions. So let's say we have to replace half of our laptops before the five years is up.
Hard drives last on average three years. So let's assume that if we don't have to replace the laptop before the five years, we will at least have to replace the hard drives. Our $5000 purchase has now brought us to just over $8000, plus the cost of IT staff to take care of them. Repairing laptops would be a small part of their job, so I'll use a conservative round figure of $500 a year. Let's round that total down to say it's going to cost us about $10,000 over five years to own these laptops.
Let's compare that to leasing those same computers. While writing this course, I obtained pricing to purchase or lease a bundle of laptops from Dell. I found that 10 laptops worth $500 each could be leased for a total of $180 a month. That lease included replacement of any units due to normal wear and tear for the entire term of the lease and it included next day on-site service for all equipment.
$180 per month for five years comes to not that much more than $10,000. It turns out that in our scenario, the two are really not that different over the long haul. For a few hundred dollars over five years, we could buy a lot of peace of mind. Don't misunderstand me. Leasing is not the right solution for everyone, and there are different types of leases available. The key takeaway is that you should do a comprehensive comparison before deciding which one you're going to claim as more or less expensive.
Make sure you understand the terms of the lease option. Find out whether the lease is a capital lease or an operating lease so you know what it does to your balance sheet and who gets the equipment at the end. Understand how easy it is to add or remove or upgrade individual items on your lease and what types of fees would be involved there. Find out whether you need to insure the leased equipment while it's on your site and calculate that into your five year cost.
By the time you're finished, your comparison may not be as close as mine, but you will find a clear financial winner for your situation. Factor in the value of the operational benefits and you can make the best choice for your organization.
- Including IT in strategy
- What does IT bring to strategy?
- Communicating the big picture
- Selecting and evaluating the effectiveness of training and development activities
- Choosing the right hardware, platforms, and applications
- Who owns the devices?
- Site planning
- External and internal connectivity