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Should Small Businesses Buy or Lease IT Equipment?

April 15, 2020

The purchasing, updating and maintaining of IT equipment is one of the biggest investments that many small businesses have to make. Moreover, a recent study suggests that small businesses spend, on average, 6.9% of their annual income on IT equipment.

In the last couple of decades, leasing has grown in popularity as a way for businesses to acquire IT equipment.

While leasing IT equipment can allow your business to access top-notch technology without huge upfront costs, it can actually be more expensive in the long run. Determining whether leasing IT equipment is right for you involves asking yourself certain questions about your business and the role that IT plays in it.

Here are some questions to ask yourself when deciding whether to lease or buy IT equipment.

How much capital do I currently have to invest in IT?

Leasing IT is particularly popular among newer businesses as it requires far less initial capital than purchasing such equipment. That’s because IT purchases pay themselves back very slowly. And when your business is starting out, investment needs to be put into quicker wins such as chasing new business through sales and marketing.

Hence, a useful guide to follow would be that if purchasing IT equipment eats into your customer acquisition budget, then you are better off with leasing.

After all, there is little use in purchasing a load of computers and software if you then do not have enough work to make use of them

What competitive advantages does having the latest IT bring to my business?

The level of IT expertise within your team should also play a deciding factor in whether you choose to lease or purchase your hardware.

When leasing IT, the company that you lease from tends to take care of troubleshooting faults as part of the lease agreement.

While you can purchase computers with support as an add-on, this usually does not come as standard. The expectation with purchasing IT is that as the owner of your computers, you are now responsible for their maintenance.

This is an advantage for companies with a dedicated IT department or with a high level of technical expertise. Being able to troubleshoot problems in-house is faster and cheaper than outsourcing this work.

However, if you do not have such capacity in your company, you may benefit from the tech support that often comes with leasing IT equipment.

Do I want to keep my IT department in house or outsource?

Leasing IT equipment allows companies to keep to date with the latest technology as older machines can be traded in for new ones when lease agreements end.

You do usually pay extra for this flexibility, so as a business owner you should ask yourself what competitive advantages having the latest IT actually brings to your company.

If you can clearly understand these competitive advantages in commercial terms, then leasing IT with a view to regularly upgrading it should benefit your business in the long term.

If such competitive advantages are not so obvious, and you have doubts that you might just want the latest IT because it is available, then it is worth considering purchasing machines and sticking with them even when later models are available.

What is my exit strategy for my company?

Although this is less relevant to newer businesses, the amount of IT (or any other) equipment that you lease in your business affects the overall value of your business.

Owned equipment are company assets, whereas leased equipment are liabilities in your company. These liabilities make your business less appealing to buyers and will lower its valuation when it comes to selling.

That being said, if your owned IT is so antiquated that it needs replacing, that will be considered a liability in your business too.

 In short, the flexibility that leasing IT equipment can give your business can make it the best option for younger businesses in industries where innovation is key.

For industries where IT is mainly used in a procedural way, rather than being at the heart of the business, purchasing equipment may well bring you a better ROI in the long term.

All in all, it is all about finding the solution that is best for your business.

Sam Maley

Marketing Director at Bailey & Associates

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