IT equipment can be a big investment for small businesses, particularly when they don’t have much working capital available. In the beginning you might be able to manage with an old desktop computer or laptop, plus a printer, but as your business grows your requirements will also grow. Also, once you start taking on new employees they will also need equipment. All these things cost money, so what is the best way to fund the purchase?
Lease or Buy?
You might be tempted to lease equipment instead of buying it, but the decision either way is not as straight forward as you might think. Both scenarios have their advantages and disadvantages, which need to be considered before you make a final decision.
Asset Finance to Fund IT Equipment
There are two main types of asset funding. If you take out a lease agreement you are basically paying rent for a fixed period of time that allows you to use the equipment without ownership. Hire purchase is slightly different in that you pay a number of fixed regular payments, but at the end of the agreement, you would typically make one final payment in order to gain ownership of the equipment. Leasing and hire purchase agreements are a popular option when equipment is expensive. Items you might lease include telephone systems, servers, and photocopiers.
Advantages and Disadvantages of Asset Finance
There are several advantages to leasing or renting IT equipment. For one thing you don’t have to pay out a big sum of money up front, which helps to maintain cash flow (an important consideration for small businesses), and for another, most lease or HP agreements include maintenance contracts, so you don’t need to worry about expensive breakdowns or equipment replacement and you will normally have the option to upgrade at various points in the contract.
On the flip side, leasing and HP arrangements can be inflexible and if circumstances change, you might be stuck with a monthly payment and a piece of equipment you don’t need. They are also more expensive than buying the equipment outright.
Buying IT Equipment
If business is booming, funding the purchase of video conferencing equipment or a sophisticated telephony system won’t be a problem. You can whip a credit card out and pass the invoice to your accountant without giving it a second thought. But if finances are tight, is buying equipment outright a good idea?
It is usually better to buy smaller items of IT equipment. Computers, printers and other everyday pieces of IT equipment can be bought on account and paid for the following month if you need to spread the cost of the purchase. Or you can buy using a credit card and take advantage of the credit offered by your card provider.
Advantages and Disadvantages of Buying IT Equipment
One of the advantages of buying IT equipment for your business is that purchases of any equipment may be eligible for tax relief, so check this out before you buy. The disadvantage, particularly in the case of IT equipment, is that as well as the initial cash outlay you will end up with equipment that has virtually no re-sale value within a short period of time.
Obviously, in some situations, there won’t be a decision to make because the only option is to take out finance. For example, if you need a high-spec printer / copier or a video conferencing system for your business, this type of purchase is far to big to be popped on a credit card and paid off the following month, so taking out a finance agreement is the only way forward.