Why Companies Should Consider Leasing Computers and Technology

31

Many companies are not aware of the significant benefits related to acquisition financing in computers and  technology  segments. The proper term for this type of financing is ‘  Technology  lifecycle management ‘. Most business owners simply consider the following question: ‘Should I buy or lease my firms new computers and software and related products and services?’

Two old adages related to leasing still ring true when it comes to the technological aspect. That is that one should finance something and depreciates, and one should buy something that appreciates in value. Most business owners, and consumers as well know very well that computers depreciate in value. Systems we paid thousands of dollars for years ago are now hundreds of dollars. Walk into any ‘ big box ‘ retailer and see the dramatic moves in  technology .

Business owners who finance  technology  demonstrate a higher level of cost effectiveness. The company wants to reap the benefits of the  technology  over the useful life of the asset, and, importantly, more evenly match the cash outflows with the benefits. Leasing and financing your  technology  allows you to stay ahead of the  technology  curve; that is to say you are always using the latest  technology  as it relates to your firms needs.

Businesses that lease and finance their  technology  needs are often working better within their capital budgets. Simply speaking they can buy more and buy smarter. Many companies that are larger in size have balance sheet issues and ROA (return on assets) issues that are compelling. They must stay within bank credit covenants and are measure often on their ability to generate income on the total level of assets being deployed in the company.

Lease financing allows those firms to address both of those issues. Companies can choose to employ an ‘ operating lease ‘ structure for their  technology  financing. This is more prevalent in larger firms, but works almost equally as well in small organizations. Operating leases are ‘ off balance sheet ‘. The firm adopts the stance of using  technology , not owning  technology . The lessor/lender owns the equipment, and has a stake in the residual value of the  technology . The main benefit for the company is that the debt associated with the  technology  acquisition is not directly held on the balance sheet. This optimizes debt levels and profitability ratios.

At the end of those operating leases, which are usually 36 months long, the customer has the option of:

1. Returning the equipment

2. Buying the equipment ( not likely though )

3. Negotiating an extension of the financing for continued use of the computers,  technology , etc.

Companies that have recently acquired computers and  technology  can in fact negotiate a’ sale leaseback ‘ on those same assets. This financing strategy brings cash back into the company, as the firm has employed a leasing and financing strategy building on our above noted them – using  technology , not owning  technology .

In summary, the key benefits of computer and  technology  lease financing are:

* The company can stay ahead of the  technology  curve

* Computer leasing and financing has significant balance sheet and income statement benefits

* The firm has flexibility with respect to buying new product, returning existing  technology , and generating cash flow for purchases already made

Many of the benefits we have discussed relate to leasing in general. However,  technology  and lease financing are very perfectly suited to the business financing strategy of leasing.

Source by Stan Prokop

· · · · ·


Related Articles & Comments

Menu Title