Leasing vs. Buying your Technology Platform
If your co-working space is considering purchasing or upgrading computers, networking equipment or other technology, the question is… should you buy or lease? Let’s take a look at the benefits, and downsides of both:
It seems like computers, phone systems and other technology is almost outdated the day it is installed. With leased equipment, the burden of keeping your co-working space updated with the latest and greatest technology is the leasing company’s job. The Equipment Leasing Association states that the ability to provide the latest and most advanced equipment was perceived as the largest benefit to leasing.
Leasing gives you a set monthly line item. Every month your equipment costs are predictable, and this allows your co-working space to budget more effectively. The Equipment Leasing Association survey also reported budgeting was leasing’s second highest benefit.
Cashflow is important to any small businesses and co-working spaces are no exception. Many technology companies offer products and services with little and sometimes a no down payment. The ability to install or upgrade your technology platform with cutting edge equipment for little or no money out of pocket gives your co-working space a cashflow and technological advantage over your competition.
Leasing can enable your shared-space to acquire sophisticated technology on a pay as you go basis. Rather than hang a new VoIP switch on your wall at full retail cost and pay installation costs and ongoing technical support costs and buy 150 phone sets outright; a lease provider can provide the exact number of phones, lines, reception computers, maintenance and software upgrades your center needs… when you need them. No one wants a bunch of phones and computers sitting in boxes for “future use” that are already paid for but not yet needed to run your business. And when it’s all said and done, one of the biggest advantages of a technology lease is support. No small business has the time or patience to deal with faulty or non-functioning equipment. Your lease provider knows that in order to get paid, your systems need to be up and running with the latest software and upgrades or they’ve lost your co-working space’s business.
Just like any business expense, the question is “how to write if off”. With most small businesses technology leases (called operating leases) you deduct the monthly payment of your co-working space’s cutting-edge technology platform.
Leasing is almost always going to turn out to be more expensive in the long run. But let’s face it, that isn’t exactly new information. What is important to remember is the service behind your purchase and who will be preforming it. Taking a new phone system for example. To buy a phone system, hang it on the wall and keep it for ten years will cost you considerably less than a leased phone system. But again, now that you have your shiny new phone system, who will administer it? Who will apply the software updates and patches? How much will the maintenance contract cost? What is my hourly technical support cost? If you can do all that work in-house, you’ll more than likely come out ahead with a purchase.
You’re in a lease, that is a binding contract. Depending on the terms, you may have to make payments for equipment you no longer need, which can happen if your co-working space’s needs change. Depending on how your lease is structured, you may have to commit to longer terms and additional fees to make changes to your existing lease as your centre needs them.
Outside of having the tech-savvy to know exactly what it is that your co-working space actually needs, it’s as about as easy as it gets! Decide what size, what color, how many gigs you need or how much bandwidth it needs to handle, then go out, negotiate a price and buy it. A technology lease on the other hand can be quite an investment into paperwork and contracts. And as mentioned above, a lease is without a doubt, a legally binding contract. And if not properly negotiated, you could find your co-working space outfitted with some equipment that is superfluous and does nothing more than add to your centre’s monthly expenses. And, you may be paying for that unnecessary equipment for quite a while under the terms of your lease.
As opposed to a lease, if your technology purchases are working just fine, you are not obligated to pay for costly upgrades. In a lease situation, the equipment provider will typically ensure that all systems are updated with the latest and greatest software and patches. Those upgrade costs are built into your lease payments and you are getting them regardless if you want them or not. When you purchase your equipment, upgrades are on your schedule, not your lease provider’s.
If you purchased your equipment, your bookkeeper might want to review section 179 of the IRS code and make sure you are getting the full deductions for your centre’s newly purchased technology platform in the first year.
If you don’t have the cash to cough up a substantial amount of money to acquire the equipment your business centre needs, you better have the credit. The initial costs for purchasing the various components to complete your technology platform can be staggering and those funds could be used for marketing, advertising or other allocations dedicated to helping start or grow your business.
You bought it, you own it. All those high-tech computers and that state of the art phone system are all destined to be obsolete. Some components of you co-working space’s technology platform could last you a decade while you’ll be lucky to get a twenty-four-month life cycle out of some of your technology purchases. At some point you will inevitably find yourself in a position that has you stuck with outdated equipment that will need to be donated, recycled or resold. Unlike other vintage collectables, there isn’t a whole lot of demand for “retro” technology. If you can’t sell it or donate it, at least be eco-friendly and recycle it.
So, lease or buy?
A couple of factors that may help you decide. Are your technology requirements relatively small, requires relatively little support or upgrades and you have the cash on hand or you can get a great rate on a loan – buy it and save the money in the long run. On the other hand, if your technology requirements are relatively substantial and requires ongoing support and upgrades, your best bet is almost always a well negotiated lease.