Is Leasing Really Worth It? 378
llamaluvr asks: "As I understand it, there are some financial benefits for businesses leasing hardware equipment. Does anybody know what exactly those are, and how much they really help? Do they really outweigh the additional costs of replacing, repackaging, and returning old hardware? How do the size of the business and the computing environment affect these benefits? Additionally, what is the best balance between leasing and purchasing equipment -- would leasing desktops and laptops, but purchasing monitors be best, or should one just lease everything?"
"A little bit of background: I work in the IT Operations department for a BU of a Fortune 100 company, and we lease practically everything right now. We have 4 full-time employees for about 800 workstations, and, while we seem to have enough manpower for managing projects and tickets, we have a tough time getting to returning the equipment, so a lot of it is already late. Complicating this is that many of these PCs are in a harsh industrial environment, and often have at least one failing part, which then costs us a fraction of the entire workstation (for example: a busted floppy might cost us $150 or more, unless we test the PC and replace the part, of course). Corporate has been more attentive to this drain on our time and money lately, and they have talked of outsourcing this process, but in the meantime, we're stuck with it. BTW, we lease IBM equipment through ePlus."
Wrong question to the wrong audience (Score:5, Insightful)
For starters: I assume that you're in the US, but could imagine that some of the tax laws, which apart from keeping your liquidity fluid, but for a price, is about the only fathomable reason why you would want to lease in the first place, differ from state to state.
If it's a matter of keeping your gear in top notch condition and fixed 30 minutes after failure you might be better advised with a support contract including a service level agreement.
Cutting to the cheese: You are better advised to ask your CPA, or if you insist on getting fancy, your tax attourney.
HTH, HAND, etc...
Too Many Factors (Score:5, Insightful)
As I understand it, sin(x) can have values between positive 1 and negative 1. Is my x going to be positive or negative?
A little bit of background: I have a value of x somewhere between 0 and pi.
Snark aside, this really isn't an issue where you should be guided by ancedotal evidence posted to Slashdot. You're working for a Fortune 100 company, for crying out loud--you need a carefully-planned methodology, not a bunch of yammering 'experts' giving you off-the-cuff advice on a very complex problem...
Leasing vs. Purchasing, short version (Score:5, Insightful)
Benefits of leasing (Score:5, Insightful)
- Depending on the lease terms, you may simply get replacement equipment once your current is obsolete (e.g. workstation is a couple revs out of date).
- Tax benefits can be dramatic. Speak to your tax accountant / lawyer.
- Depreciation of assets can look very bad on a publicly traded company's books. To avoid this, many public companies lease as much as they can.
- Often leasing means consolidation. In this day of CDW and the like, that's not as big a benefit, but it used to be huge.
There are probably other advantages I'm not thinking of. Of course, the down side is that you can't just treat the hardware as your own. Your developers (if you have any) will be especially displeased to hear that they're not allowed to just slap in some RAM or a hard-drive they had lying around.How do you get rid of old equipment? (Score:3, Insightful)
When the client is paying hardware rent every month it's easier to say "good news, for the same rent you can get the latest hardware".
Re:Too Many Factors (Score:4, Insightful)
As I understand it, I'm a total freakin' idiot when it comes to basic trigonometry.
Where do I go to turn in my geek badge?
Talk to the accountants and lawyers (Score:5, Insightful)
However, at the time, this organization was legally a limited liability partnership. As such, any assets were problematic for a couple of reasons.
1. Capital expenditures must be depreciated over a multiple year cycle - you may pay $10K for that box, but you have to treat the box as if it's worth $10K this year, $6K next year, $3K the next, etc. We all know that computers depreciate more rapidly than cars, and there's no way that you could recoup 60% of the purchase price 12 months after purchase of a box. Expenses, however, are written off as they happen. Spend $10K on a lease this year, and you write off $10K THIS year.
2. You also show no value for that asset because it's not yours. This matters when the partners are concerned that a lawsuit loss might cause assets to be liquidated and LLCs like to have as few assets as possible. The less there is, the less that can be taken - or so the thinking goes.
So, it may cost more actual dollars the way you're doing it, but I bet that the accountants and lawyers have it figured out so that it's really in the best interest of your organization to 'waste' that money.
Hope this helps!
Regards,
Anomaly
Re:it's all in the taxes (Score:5, Insightful)
When it comes to reducing taxes, nothing is a scam if it is legal. Paying the lowest tax allowable by law is every citizen's duty to their country.
Re:Wrong question to the wrong audience (Score:5, Insightful)
Other people are telling you to leave the decision to someone else -- my advice is that if you want to understand how the decision is made, that's great and you should look into it! Just realize that you want to talk with the accounting and finance people, not with the folks here. Slashdot is for evidence-free arguing about Linux TCO, not about the stuff affecting this decision.
Re:Too Many Factors (Score:2, Insightful)
A: If your x is between 0 and pi, it's always positive.
B: If you want to know whether sin(x) is going to be positive or negative, it ranges from 0 to one from 0 to pi. Therefore, positive again.SIN(x) [analyzemath.com]
Trig is your friend!
Re:Too Many Factors (Score:3, Insightful)
This isn't a complex problem requiring carefully-planned methodology. Your x is going to be positive.
You provided a helpful clue here:
> I have a value of x somewhere between 0 and pi.
Please tell me how to collect my cash and valuable prizes.
Re:Too Many Factors (Score:3, Insightful)
1 | _---_
| _/ \_
| / \
|/ \
0 +------------------
0 Pi
Re:Falacy (Score:3, Insightful)
Ok, I'm rambling. Basically, unless you're dropping HUGE amounts of dough on support, my experience shows that HP, IBM, and SUN could care less about you.
Minor advantages, major drawbacks (Score:3, Insightful)
===
1. Forced retirement of obsolete equipment at the end of the lease. Leases eliminate management discretion in the upgrade process. You can and will upgrade when the lease expires -- not before, not after. Useful when senior management is out of touch with technical reality, although the loss of discretion cuts both ways (see below).
2. Monthly payments -- better short-term cash flow without actually borrowing money.
3. The "temporary" nature of leased PCs is understandable by the average employee. If they KNOW their machine is going away in 36 months, they tend to find better places (file server, CD, etc.) to store their data. Leased servers have the same impact on sysadmins -- they can plan on a non-discretionary 100% replacement at a known date in the future.
Con
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1. Mid-life hardware upgrades are a problem. Do you save the old parts to put the machine back to as-delivered condition when the lease expires?
2. Who owns the software? Is that leased also? Usually the answer is "no" (see Microsoft EULA). But you have to wonder about the OEM packages that may be pre-installed and supposedly licensed to a specific machine. Of course, open source would take care of the problem
3. It is possible to have a lease that extends beyond the warranty period. How much do you spend to fix a computer you don't own? What happens when you return it and it's broken? If you are paying seperately for hardware maintenence, how happy are you going to be when the maintenance cost exceeds book value?
4. Towards the end of the lease, the monthly payments will exceed the value of having the equipment. What do you do if the equipment is obsolete before the lease expires?
I think the depreciation curve on IT equipment is too steep for leasing to make sense. I have some experience with leased equipment. My company bought a smaller company, and they had leased PCs. Not only were they leased, they were barely adequate when new and were obsolete at the time of the acquisition. Nobody would spend money to upgrade the PCs because the lease was going to expire in about a year. The cost of the upgrades (monitor, OS, memory, disk, etc.) was dangerously close to the cost of replacing the machines outright. The employees had to suffer with junkware for almost a year before the problem could be solved. If the machines were purchased, the problem could have been solved sooner. It's hard to acknowledge technical reality when money is going out the door every month. If the stuff is already paid for, it's a little easier to wake up and smell the cappuccino.
Re:Leasing servers (Score:3, Insightful)
Re:Assets and Lawsuits (Score:3, Insightful)
So, let me get this straight. If you lease everything and own nothing and get sued your left with nothing. If you buy everything and get sued and all assets are taken and your left with nothing.
To me that sounds like a loose/loose situation.
Also, if leasing is more cost effective, then your likely to have more cash lying around, which is what people sue for anyway.