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The Almighty Buck

Financing Computers for Business? 36

Posted by Cliff
from the intimidated-by-the-numbers dept.
Mercutio asks: "OK, I've been handed the responsibility of acting like a grown-up and changing from my normal day-to-day IT job to actually making decisions involving someone else's money. Specifically, I've been asked to deal with all the variables associated with purchasing/leasing computer equipment (desktops, laptops, printers etc) and I'm feeling a bit out of my league. Anyone have any tips for dealing with leasing or financing equipment, companies to avoid working with, or mistakes made in past leasing/purchasing arrangements? Any company that was really great to work with? Any help is of course appreciated. Thanks."
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Financing Computers for Business?

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  • by xagon7 (530399)
    It depends, if you have a large enough IT staff that can handle maintenance and support to build your own machines. If not, nearly every company I have worked for have used Dells and had great luck. I have hardly had one break, and if they do break and you have a decent support contract, they can usually have them fixed for the employees that day or the next.
    • I have to agree that this is really Dell's strength. I would never buy one for myself, but I wouldn't hesitate to recomend Dell to a business.

      Of the other major brands I've had any experience with, Compaqs are nearly impossible to deal with if you need to upgrade, reconfigure, or otherwise deviate from the default system in any way, and Gateways seem to have stability issues.

    • I've purchased a bunch of Dell machines in the last year and they are rock solid hardware wise. The problem comes when you want to upgrade (say, a server) or have a service type issue. Their phone centers (customer care, technical support, and sales) will all pass you off to the next department to make you go away and not solve your problem.

      Also, those next day service contracts normally mean the next day after the replacement part arrives to their techie... not counting if that part happens to be out of stock or back ordered. :( So you could have a dead server or workstation and "next day" is actually 5-6 business days from now in the contract.

      I've been fighting with them since 10/3 trying to resolve an upgrade problem with my server and I finally got through to a VP a few days ago who can actually do something instead of telling me to contact their legal department (by snail mail only!)
    • One of our customers bought Dells only for his small LAN and was happy until a machine went down with a bad hard drive. The tech came out alright and replaced it, but he just got it booting to a C: prompt. Reinstalling Windows is the customer's responsibility. End result: Dell lost a customer.
  • GE Capital (Score:5, Informative)

    by gmhowell (26755) <gmhowell@gmail.com> on Thursday October 31, 2002 @02:37PM (#4572619) Homepage Journal
    GE Capital wasn't bad to deal with. Can't remember who we use now (Also can't remember why we switched. Or if we did. It's been a few years since picking up a new lease on equipment). A couple of things to recommend:

    Make sure vendor doesn't get a good portion of the money until AFTER the contract is fulfilled. We had a big problem with this. Partially our fault, partially the lease company (not GE in this case). Which leads me to number two: make sure the finance company is dealing with only one person: YOU. YOU are the one who has to sign off when various stages of delivery are met. You are the one who has to be happy. They are not to send a dime to the vendor unless you say so.

    Talk to your accountant. He can best explain to you what the terms should be from a tax and cash flow basis. Any advice to the contrary should be taken with a grain of salt. CPA's speak the language of the IRS.

    Have a good idea now if you will be keeping or returning the stuff at lease end. If returning, budget for saving all those boxes. It will make life much easier. We always buy out at the end of the lease, so we pitch the boxes (saving a couple for shipping in case of bad unit after the lease is final). When making this decision, don't forget the cost in 3 or so years of reinstalling all these machines.

    One thing I could never get an answer to: who owns the licenses, you or the lease company? I have a feeling this is something that may become an issue in the future. My reading is that all of the equipment is the property of the lease company. Reading the standard MS licenses, they may not be sold, transferred, leased, etc. Considering you are a random slashbot, I doubt you have a site license. But I could be wrong. Our policy: if M$ comes knocking, block the door. If they show up with subpoena's, torch the building. Actually, we have more licenses than machines running MS OS'es, but they are poorly documented.

    See if you can swing a service contract for the length of the lease. It really pisses off CEO's to be paying for machines that are dead and/or costing money to repair. Also, your lease company might require it. BTW, this also depends on the savvy and time availability of in house folks.

    To sum up:

    1. Hold back some money (25% is a good amount) to make sure the vendor satisfies you.
    2. Make sure one person and one person only can release money from the leasing company to the vendor.
    3. Talk to CPA.
    4. Begin making the decision now whether to buy out lease or return equipment.
    5. (optional) Talk to attorney about licenses.
    6. (optional) Consider service contract for length of lease.
  • Purchasing vs. leasing has a bunch of implication for the company's tax & financial situation - you'll want to ask your Money Dept. Some businesses even set up their own dummy leasing companies to buy stuff (which the business then leases from its pet leasing company) - sounds stupid, but tax law can make it a smart financial move.

    If you lease, make sure you compare your vendor, your bank, and a decent leasing company to get the best deal. (Again, you may want to check with the Money Dept. on apples vs. oranges.)
    • sounds illegal. or sounds like it should be.
      • Actually this is more common then you would think. Our company does it and at first I thought, it was really stupid, but talking to our CFO, it made some sense. I'm not knowledgable enough in it to explain it here, but it allows our accounting dept to be more flexible in what gets leased and what doesn't. Plus we probably give ourselves good rates.
  • If you want a real answer your going to have to supply more info. You need to think about the number of machines, the types of mahcines you need, the level of support, and the amount of on site tech staff you have.

    Are you a technology company or are you just gimping systems for your marketoids?

    Do you need servers(+20)?
    How many computers total?
    Factor your tech staff for onsite help?
    Can you handle being down for a day if a system poops on you?
    If a server craps on you?
    If your CEO's craptard of a son installs something on his computer and hoses it, can he be down for a day?

    You have a ton to think about here. If your looking for a blanket answer to this question.

    Small amount of staff, large number of computers, and a support contract. You deal with 48 hour or more turn around time.

    Medium staff, large nubmer of computers, you build them. Couple hour turn around time.

    Something people might not point out to you is also the fact that if you lease computers there is a large blame shift to the company you leased from. Your no longer the IT that can't keep shit running...Then again, your no longer as "in control" of it either.

    Everything has goods and bads, you really just need to sit down and figure out which one is better for you, and in your company. We can't make that call, we don't see it everyday like you do.

    Good luck.

    • if you lease computers there is a large blame shift to the company you leased from

      No, you still get blamed. This time, you're the IT who "got a Dell" and fscked up the support contract. The only shift is that of control over hardware quality, software, turnaround time etc... that you mentioned. Any competent IT can build his/her own far better than Dell can.

  • by Strange Ranger (454494) on Thursday October 31, 2002 @03:01PM (#4572824)

    Whatever you do, standardize the initial hardware config and image and get the vendor to load it. Also include everything you have a site license for in that image, then add user specific software/hardware. Sounds like an obvious no-brainer but it's AMAZING how many places I've seen that shop for cheapest price all the time and end up supporting dozens if not hundreds of different hardware configurations, different software versions, etc. What a mess. In the end, Total Cost of Ownership is far cheaper when you can manage a very homogenous environment. Ghosting out images whenever you have a serious desktop problem is wonderful. So is unpacking the PC right at the users cube and having it already imaged. You can allot a maximum time for desktop troubleshooting.. say 10 minutes.. past that it gets blasted with new image, done. No-Brainer. Over time one or two images for desktops and one or two for laptops will become impossible unless you have a small company, but keep it under control and you'll be a hero.
  • Set up your own company. Buy the computers. Finance them through a bank. Lease them back to your employer. Profit...

    If you can't get sufficient financing from the bank, maybe the employer can chip in, investing in your business...
  • My company leases everything through Wells Fargo in Texas. Everything. Dell equipment, Canon Copiers, HP printers, no matter where they come from. We put in a purchase order, they send out the money.

    This is what banks are good at :-), and most of the venders like it too.
  • by jpsst34 (582349) on Thursday October 31, 2002 @03:07PM (#4572874) Journal
    ...but it's even better after it's been translated to Chinese and then back to English with babelfish:

    Good, I are handed over the motion are likely grown-up and the change work from my normal every day its responsibility to in fact make the decision involve the others money. Concrete, I are requested processing all variables and the purchasing/leasing computer equipment (tabletop, on knee computer, printer association and so on) and I feels the position outside mine union. Any person has all definitely skillfully for the processing lie or the financial equipment, the company avoids working at, or wrongly violates through the leasing/purchasing arrangement? Is truly great work any company? Any one help is certainly appreciated. Thanks.
  • While not first hand information, should you check into it you'll find out how true it is... If you do decide to lease systems from a company such as IBM, shen the lease is up you have to return all the machines and start over or buy out the lease. Now if you are in charge of purchasing a large number of systems for many employees and some of these systems go missing (it happens, I know it does) and you want to return the machines you will have to pay large penalties, or depending on the naturn of the lease agreement you may not have a choice but to buy out the machines. Buying out a lease is not cheap once you do all the math involved. Bottom line is leasing can be a good and viable option but read the fine print of the leasing agreement and evaluate what the chances are of machines or components going missing. Good luck!

    • Heh. You should never go for a 'fair market value' buyout option at the end of term. Because it's never FMV. We always go for a $1 buy-out so the lease is, effectively, a 3-year hire-purchase.

      You can get insurance to cover lost/stolen/destroyed lease equipment - and it's probably worth it if the per-unit value is high.

  • by jsimon12 (207119) <(tzzhc4) (at) (yahoo.com)> on Thursday October 31, 2002 @03:23PM (#4573039) Homepage
    To be honest just get an accountant (it may cost a little up front but could save you thousands down the road), they will know exactly what you want for a lease or purchase and will be able to tailor it for you tax/financial purposes. A good accountant can make the difference between owing more tax and not.
  • by slaker (53818) on Thursday October 31, 2002 @03:26PM (#4573066)
    To respond to those asking for more information:

    I work for a training company. I'm solely responsible for, at the moment, about 150 non-uniform beige boxes in five different locations. The company only has five full-time employees, but a horde of part-timers. I am the IT department. Just me. Everyone else teaches non-technical classes or has an administrative role. Maintaining 150 random beige boxes, mostly with super-cheap generic motherboards, is exactly as nightmarish as it sounds. Ghost helps a lot but can't fix everything.

    I've gotten approval to purchase 60 PCs over the next month, but we're a small business and this is a decidedly large-scale endevour for us (I understand that the PCs we now have were purchased maybe three or four at a time, on a cash basis). I'm completely re-building our network infrastructure - putting in 802.11b and laptops for the full-timers, actual 100Mbit everywhere (and Cisco hardware for my classes), setting up a couple of file servers and dedicated internet access at the remote sites.

    That's the plan, at least.

    The down side of this is that I have no earthly idea how to properly evaluate financing options vs. leasing vs. paying for equipment outright, and since I've never personally done purchasing for anything NEAR that much equipment, I don't want to be subject to the whims of the salesdroids I'm going to be talking to in a couple of weeks.

    To anyone who replies, I thank you very much for your thoughts.
    • by MightyTribble (126109) on Thursday October 31, 2002 @04:22PM (#4573648)

      For the love of God, go to Dell and get yourself a Small Business Department sales monkey. A $60K + purchase will win you many friends, and you can OFFLOAD YOUR SUPPORT TO DELL. This is key if you're the only IT person. Get next day onsite service and gold tech support phone coverage. You can also have them do you a standard customised image for these units.

      You can lease from them at pretty reasonable rates if the company has been around for more than 3 years, too.

      • Ditto MightyTribble ^.

        And everything Anomoly said.

        Go over the contract with a peer who's been there before and you'll be all set.
      • I've had nothing but positive experiences with Dell's next-day support. The upfront cost may have the bean counters trying to talk you out of it, but it is always cheaper when you factor in the lost work time that occurs whenever a computer goes down and can't be fixed because you're backlogged with more serious issues than one user's PC.
    • Ask your finance people is you can get any tax benefits from leasing. This is a good use of the companies cash. You only pay for the portion of the useful life that you use. Then you turn them back in and get newer better stuff for the same cost (because hardware costs are continually decreasing) The real cost of this setup is the cost of teh software.

      Do you have seat licenses for all the software that you use? Or are you limited by the actual purchased products? Remember that XPHome cannot network more than 5 other computers in a workgroup and cannot join a domain. To do that all the computers must be running XPPro and all of them must be registered with MS or they will stop working.

      I would get a universal license for all the software used on these new machines.
    • One more thing, this time about leases:

      I've done a few biggies ($100K), and they've all been with a $1 buyout at the end. Treat a lease like a 'hire-to-buy' deal, and you can't go wrong. Depending on your bargaining chops (and how much kit you're buying) you should be able to get a deal where you essentially pay the same amount over 3 years with a $1 buyout lease that you would had you just paid cash up front, give or take a few points. It's pretty easy to set up an Excel spreadsheet to work out exactly how much the lease will cost you, per unit, over the term, and this will let you compare different leasor rates.

      I'm assuming you don't need to worry about the tax implications of leasing - that's the job of your accounting folks. Leases are good for cashflow and tax reasons, even if they end up costing you a little extra over the term.

  • ..and smile slyly, mentioning how your TV broke and you could really go for one of those new 50" Plasma TVs.
  • I used to have the job that you have (different company, same deal) and the inconsistencies will detroy you!

    If I only knew then what I know today!

    Standard images (and standard hardware) are your friend. Installation packages of the software so that it can be installed in unattended mode will save you huge amounts of time.

    You'll need a software distribution mechanism - if you're an entirely Windows shop, leveraging active directory for software deployment can save you incredible amounts of time.

    Ideally you would have just the OS in the "gold disk" so that when your applications change (and they do VERY often in that world) you don't need to re-burn the image.

    Documentation of installation order is a critical function as well. Yes, installing IE before versus after another application can make your PC very unhappy.

    A software inventory tool might be helpful, too - does classroom #5 have Project '98 or Project 2000?

    I hope that you can get the management support to replace that hardware and get the management tools that you need, or that you can find a better job.

    If they won't help you get the tools that you need, you're far better off working for someone who will get the needed tools.

    Pilot your proposed solution in one classroom first, and when you've got it tweaked, then migrate it to another one.

    Hope this helps.

    Anomaly
  • Like Dell. Pick someone serious and get a corperate sales rep. They've done this alot, and know way more than you do. Give them a situation and they (should) give you a solution.
  • Business needs (Score:4, Informative)

    by ComputerSlicer23 (516509) on Thursday October 31, 2002 @05:32PM (#4574228)
    Disclaimer: I'm an IT geek, I know nothing about business, but I watch several smart business guys with techie knowledge at work.

    Basically, leasing and financing are all about cash management, they have very little to do with the value of the computers. That is, if you lease you nearly always get screwed. By the end of the lease you have pretty much paid for the computers but they take the computers away from you.

    If you want to know the value get have the vendor quote out the price for leasing and buying up. Figure out the difference in the amount of money you have to hand them. You if you plan on getting new computers by the time the lease is up, and the lease costs less money probably lease them. Especially if the company won't make money of disposing of the computers when they buy new.

    Now, if the lease costs as much (or more), or you believe the computers will have value after then end of the lease period, it's probably a buy situation.

    Now there are some situations, like where I work, were we don't buy computers, we lease them, even though it's not cost effective by the standards I said before. The reason for this is cash management. It's in the best interest of the business to hold onto as much cash as possible because if it isn't cash flow positive (yet). So we hold onto the cash to keep the doors open as long as possible. Possibly the leasee will get screwed if we go bankrupt. Cash is king to a small business so we don't like giving it up until the last possible instant.

    The other interesting issue with leasing is it gives you a lot of leverage. They still have to treat you well to get the money you haven't given them yet. Nice thing to have.

    The reason you do financing is for two reasons. Either the deal isn't good enough on the lease, so you really want to buy them because it's a better value. So you go find a bank, get better loan terms from them, so the buy option w/ loan is better then the lease. Especially if you do a lot of business with a bank now, this makes a lot of sense. Now the bank has the equipment as collaterial, the terms are as good as buying, but better then leasing, and you haven't coughed up all the money up front.

    The other reason to finance is because the company you want to buy equipment from doesn't do leasing. You can finance the computers and essentially lease them from the bank.

    There's some other stuff I really don't understand (okay I understand it even less than what I just explained). Leasing has to be booked differently (as a monthly fixed expense I believe) which is good in the eyes of a lot of investors. Financing has to be booked as some variety of debt (effectively it's just a loan). Buying gets booked as a capital expense. All of this has a lot of tax implications, and accounting implications. Go find the person who does your books, make them help you make this decision. You're not a business guy, you shouldn't be making this decision. You should be spec'ing what you need, and who you want to do business with. The final decision as to what is the best value for the company as a whole is out of your realm of knowledge (and mine for that matter).

    Normally all have buy options at the end of them. Be sure to get the buy option spelled out up front so if you need to keep the equipment because you haven't secured a replacement you can. Also find out what happens if you have to keep the equipment just one more month. Do you have to buy, or can you lease for just one more payment? Does the payment go up?

    So all of this sums up to doing two things. Get all the options in front of you, figure out how much each one will cost you over the life of the computers. Now you know which one is "cheapest", you have to weigh when you are going to give up the money, and what makes the most sense from the business prospective. Leasing and Financing allow you to hold onto cash which in a lot of cases is more important then a marginal increase in cost to the business. Find the accountant/tax person, and have them help you with what makes the most financial sense above and beyond the merely technically implications of it.

    Kirby

    • You misunderstand two big reasons to lease.

      Taxes are often different by enough to make up the difference. There are some accounting scams that mix in here too, but often a buisness is better of leasing. Don't forget in this that the budget looks better when you pay a fixed amount every year, than the replacement fee every 3 years.

      Computers are obsolete in 3 years, with a lease someone else gets to figgure out how to enviormentally get rid of them.

      • I thought I covered all three of your points in the original post:
        All of this has a lot of tax implications, and accounting implications

        if you plan on getting new computers by the time the lease is up, and the lease costs less money probably lease them. Especially if the company won't make money of disposing of the computers when they buy new.

        Leasing has to be booked differently (as a monthly fixed expense I believe) which is good in the eyes of a lot of investors.

        At least in terms of personal use, leasing is a horrible idea in terms of taxes. You get screwed pretty badly leasing a car for instance (at least in Nebraska, I get to pay the property tax, and not own the vehicle boy oh boy, what a deal...). You get screwed leasing/renting a home (anywhere in the U.S. because you can't deduct the interest from a loan). I'm mildly surprised it's a tax win to lease equipment (depending on how financing/loans work that might be better then leasing). Tax law is so screwy that I stopped bothering trying keep up with it.

        I thought capital investments were the way to go tax-wise, and leasing and financing are not capital investments, but buying equipment is. Computers are weird because they depreciate really fast so that might be all backwards. It's not like buying a tractor, or irrigation equipment that will last 30 years.

        Out of curiosity, when/why does it become a tax win? You seem to be better informed on the details then I am. I really am clueless as to why it is better tax wise.

        I've heard lots of people say leasing a car is a good deal, but suddenly Ford (whom I lease from) is now raising all the pricing structure on new leases because they are taking a real beating. Which meant they used to be a good deal, but leasing won't be any more.

        Kirby

        • The rules for buisness are different from the rules for people. They pay taxes at different rates, with different deductions, and so on. When a buisness buys a computer they have to depreciate it over several years (3?), when they lease they somehow deduct that from taxes. (Which isn't to say they pay less taxes by buying a computer, this area of tax law is so complex and messed up that I just tell people to contact an accountant and let them figgure it out.

          Leasing a car is not nessicarly a good idea for people, it is typically more expensive. For a buisness the rules are different.

  • by gentlewizard (300741) on Thursday October 31, 2002 @07:44PM (#4575096)
    My home lab has two Dell Precision 210 workstations, with a KVM box to a common monitor. I bought them used on UBid [ubid.com] for about $300 each. They still work great, even after a corporation banged on them a couple of years.

    What I really like about them is the "no tools" cases. I can flip up/open just about everything just by releasing latches. I wish the cabling was longer, but they've been good for me.
  • The most important thing is who are you going to call when something breaks. The money is already spent and there is no tomorrow. Go with a proven company that has a commitment to service and support. (I have found that the best was Dell) I have run 50+ user machine shops for call centers and other operations.

    The two most important things are hardware warrantee and rescue disks. The key is to standardize the hardware so you do not have to keep lots of different drivers.

    -- Hardware --
    Who do you call when a power supply fails or a video card flakes? Dell will give you onsite repairs for just a little more. It is worth it.

    If the whole lot is crap then you have some leverage to return all the machines and make them pay you. They will not want to do this. They will make it good, whatever thier cost.

    -- Software --
    Use the standard rescue disk to setup the first one, add your changes then ghost the image. Burn the image to a CD for recovery, network recovery or put it on a usb drive, like pockey http://www.pocketec.net/. Recovery disks are your friend!

    As far as the Service goes, HP sucks. Compaq used to be good for servers, but HP will cause this to blowup. IBM is out of the PC business. No-one should use a Gateway for business. Sony's are built for home and you cannot order them direct so you would end up with a few different configurations. The rest are no name imports.

    Get a Dell and make them give you a personal business contact.
  • [ where went the feature not allowing to post without at least one preview?? ]

    I work at international company and do these decisions for our region so here is my experience.
    • Leasing versus purchase: Our local finance department made the decision for us that in our country it is much cheaper to lease than purchase. So we lease everything. But in other coutries we purchase everything - therefore, it depends on the country and finance do the decision for us.
    • Support - We use Dell computers - because of 3 years NBD (Next Business Day) support which we get by default with computers - so that we don't have to pay any additional cost for support.. Whenever we have hardware problem they come and fix it (replace the component) within 24 hours. Marvellous!
    • Upgrades - Be cautious about the price of upgrades, while the initial purchase of computer could cheap, upgrades with some companies (Dell) can be very expensive (plan for long term). Also, be cautios about the ownership of components being bought for upgrades in the case you have a leasing with returning the equipment in the end of leasing contract.
    • Model and configuration - You probably want to keep the same HW configuration over the time so that you can use the same images for OS and apps. Make sure you buy a model which is in the beginning of product cycle (avoid purchasing models being EOLed in a couple weeks).
      And be cautious about parts being changed within the model from vendor. It happened to us that Dell changed the graphic card in the model we were taking and it broke all our images. Make an agreement with vendor that they let you know about HW config changes in advance so that you can still buy the old configuration.
    • How we do purchase - We first ask for loan of the computer to perform a real test to verify the workstations will be really suitable for us. Then we try to buy all computers in bulk and at once (to avoid problems with changing configurations and model).
    • Linux - As we have to support Linux, we chosen Dell as they certified their workstations for Linux. But we do real tests before the purchase anyway.
  • Net Present Value, cashflow analysis.

    Here is a good place to start www.toolkit.cch.com/text/P04_5162.asp.

    With computing I tend to think depreciation rates (48% here in NZ) make purchasing better than lease. Still you have to weight up cashflow issues and it depends on the support contract you get.

    Remeber computers are just another business item consume in the production of profit.

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