Financing Computers for Business? 36
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."
GE Capital (Score:5, Informative)
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.
Purchase vs. Lease is a Finance & Tax issue (Score:2, Informative)
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.)
Re:I am the question originator (Score:4, Informative)
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.
Business needs (Score:4, Informative)
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