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."
Leasing servers (Score:5, Interesting)
Re:Leasing servers (Score:2)
Buy servers (at end of lease or up front), leaese desktops and laptops. Migrating them is easier than migrating a server.
My experience leads me to believe that the useful life span of a server longer than a desktop or a laptop.
Re:Leasing servers (Score:5, Informative)
leasing is a straight-forward writeoff for tax purposes while buying will involve amortizing the cost over multiple tax years.
Re:Leasing servers (Score:3, Interesting)
What are the tax implications of leasing and then purchasing at the end of the lease, as the parent suggested?
One would assume they'd be more complex (glad I'm not an accountant)
Re:Leasing servers (Score:5, Informative)
As all things, the answer is "It depends".
I'm a fan of the $1 buyout lease, for tax purposes this is the same as buying. If the lease is structured more in line with a FMV (Fair Market Value) buyout, it would usually not be treated as such, and the leasing company would take the write off (helpful for a start up that won't be making a profit and thus makes no use of the tax write off, since the leasing company IS profitable and thus can bundle the tax savings into the payment
Another potential benefit is in the company books. Since the company doesn't OWN the equipment, it doesn't show up as an asset, and since it can be treated as a monthly "service", the debt doesn't have to be disclosed on the books like a loan would.
Re:Leasing servers (Score:4, Informative)
Generally, when you purchase something, it goes down in your books at cost, and stays at the value you purchased it at. Another account keeps track of the depreciation - it's calculated differently depending on what it is, but generally it's a curve. The lowest spot on the curve is at the end of useful life, when the value recorded for the machine minus the depreciation is the amount you've estimated you can salvage it for.
If you're buying a piece of equipment at the end of a lease, it's the same thing. You move it into an asset account at the value of what you purchased it for, and start depreciating it. The main difference here is that you're probably only going to have the machine for a short time, so your depreciation is very fast.
Bear in mind that to people who don't work with accounting methods, they don't make any sense. It's all based on 14th century financial theories and it takes some training to figure out exactly what's what. The methods are standardized though, so it's always roughly the same for every company (barring international differences).
Re:Leasing servers (Score:5, Informative)
If the company exercises a purchase option at the end of an operating (expensed) lease, the lease-end purchase price is capitalized and amortized over the remaining useful life of the asset; it has no effect on the original classification of the lease. I don't remember the rule regarding an exercised purchase option at the end of a capital lease (it's been a long time since I had to know this). FASB Statement 13 [fasb.org] covers this in excruciating detail if you really want to know more, but beware of all the interpretations and amendments [fasb.org]...
Re:Leasing servers (Score:5, Funny)
Re:Leasing servers (Score:3, Insightful)
Re:Leasing servers (Score:5, Informative)
In general, leasing of anything is optimal if:
A) The item has a long usable lifespan (i.e., damage from use is minimal) and low maintenance costs compared to purchase costs
B) The lessee only needs it for a short time
C) Item devaluation is minimal
Does this really describe your business model here?
Re:Leasing servers (Score:2, Interesting)
If I were to lease (rent) something and it broke I (here in Denmark) would just return it and ask for it to be replaced. And I'd call bs on the amount of time, we got a couple of servers on lease for 4 years now, it would have been cheaper to buy them if you just look at the cost and divide that by the rent, but thats not how you do those calculations - you need to look at the value of investing the money vs. buying the hardware, which leads us to point C - you would do t
Re:Leasing servers (Score:5, Informative)
At the end of the lease an asset has residual value. That residual value is determined when you execute the lease. The benefit of leasing comes when the asset has a high residual value; thus the lease payments can be viewed as a loan of sorts, a loan for the difference between the purchase price and the residual value.
For example, if the purcahse price of a server is $10,000, and its residual value after 3 years is $2,500, then the lease is effectively a loan for $7,500, repaid over 3 years. Thus, if you intend to refresh the server after 3 years, you get use of the server for 3 years for $7,500 (plus interest); whereas a purchase of the device would ential use of the server for 3 years for the cost of $10,000 (plus either interest or "the cost of money") and less what you manage to sell it for.
The potential gain from leasing must then be compared with the overhead associated with maintianing an organisation that tracks down and returns assets ON TIME; since late fees detract from the benefit.
There are also non-traditional reasons for leasing. In a former job my boss introduced the leasing of all servers and desktops, where the lease costs were paid by Corporate IT (instead of each department's budget). This allowed Corporate IT to standardise the hardware configurations, and enforce regular refresh of assets, where old assets did not hang around for extended periods of time consuming software licenses and support.
To a degree (Score:5, Interesting)
The second constraint is that those doing the maintenance have no ties to you, which mean that they don't have to do anything effective. I've been in companies where "guaranteed support" from contracts really didn't exist. The contracts had too many get-out clauses and fine-print, exempting them from any kind of quality of service, even though we were paying through the nose for those extra guarantees.
The third problem is that you're likely to get refurbished equiptment with an unknown history and minimal to no quality control. Even if there were checks, though, reliability is an unknown. From electron migration to thermal damage on chips to hairline cracks in the motherboard - there are many faults that are hard to identify in any simple laboratory test, but which are exceedingly likely for older equiptment.
Security is a big issue, these days. You think a refurbished server or router is going to be running fully-patched, fully-tested environments? Chances are, even those who own the equiptment will have no idea of what is actually running. It is unlikely, but possible, that "logic bombs", root-kits and other hard-to-spot malware may be running on the device when you get it.
Buying a commercial off-the-shelf solution is not perfect and won't PROPERLY fix any of the above, but it's a better bet for anything that is mission-critical.
The "ideal" is to buy the component cards from the manufacturers, assemble & burn-in test in-house, and then deploy. Then, you have 100% control over the steps and actually can provide a higher level of assurance. True, it won't have any fancy warranties, but as downtime is the most expensive part of any IT operation, fancy warranties that companies rarely honor anyway are of little value.
The gratest fallacy in IT is to rely on stickers, labels and other scraps of paper. (a-la the certification issue discussed on Slashdot recently.) These things add nothing and frequently cost lots. What adds value is whether the hardware works and works well.
If you want the job done right, do it yourself. That has been true for hundreds of years, and if modern practices have changed things at all, they have made it all the more important to remember.
Falacy (Score:3, Informative)
Establish long lasting relationships with large systems integrators and builders such as HP, IBM or SUN. Work with your vendors to get a solution that matches your requirements.
Then, hold your vendor to the agreement. If your not getting what you need, call your sales rep. Call the VP of customer relations/support for the company. Talk to the money people rather than
Re:Falacy (Score:3, Insightful)
Nonsense (Score:3, Informative)
Also, if you were to lease refurbi
Re:Nonsense (Score:3, Funny)
Now now, be reasonable. That could still be one hour, the just didn't specify which hour.
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...
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.
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...
Re:Too Many Factors (Score:3, Funny)
Mmmmmmmm pie...
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?
Re:Too Many Factors (Score:2)
I once worked for a Fortune 100 company that had a very good accounting staff and formal training in financial theory for engineers who were coming up through the ranks - and one year we peaked at three flip-flops between "buy PCs" and "lease PCs". Each one accompanied by a very authoritative letter from a Tax God proclaiming that This was the correct treatement.
Reality
Re:Too Many Factors (Score:5, Funny)
Fortune 100 Secret (Score:2)
2. ???
3. Profit
I agree that the solution to this involves spreadsheets rather than anecdotes. Figure out how much it would cost to maintain what you own if you bought it instead of leasing. Figure out the MTBF and cost of dealing with the F part for each item. Figure out how many man-hours it would take to prepare things to return from lease. Work to maximize efficiency in the numbers. The numbers are something that you (the original submitter) are you a uniquely good position to k
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
Leasing vs. Purchasing, short version (Score:5, Insightful)
Relevant Article (Score:4, Informative)
In short, they found that if you want to turn over your computers frequently and on schedule, and were good at asset managment, leasing was generally favorable. But if you decide you want to turn them over ahead of schedule, make changes to the systems during their use (like add memory), or aren't amazing at tracking assets, then the administrative burden could be really heavy.
They also had a neat description of a procurement system that facilitated the vendor bidding process.
Overall, the article is a nice balanced look at the topic.
It's all about taxes (Score:4, Informative)
Re:It's all about taxes (Score:2)
Re:It's all about taxes (Score:2, Interesting)
Re:It's all about taxes (Score:3, Informative)
My PC is $151/mo for three years ($5436 over the lease), but was ~$3000 from the manufacturer (the government price would have been even less). This is on top of monthly charges for support ($135/mo), email ($19/mo), network access ($34/mo), calendaring ($7.50/mo), manditory external file storage ($40/mo). All of these charges are out in the open and anyone who can multiply can see how bad the governm
Re:It's all about taxes (Score:2)
Re:It's all about taxes (Score:2)
I thought it also represented wear & tear on capital assets over time (irrespective of whether said asset is used to generate profit, process driving license applications or run a charity), thus giving a more even & accurate picture of costs.
Re:It's all about taxes (Score:2)
It's easier to make the case that "I need a new x because it's going off lease next year" than to make the case that "Although I already have x, I need x+1 to do my job more efficiently..."
For municipal governments (at least in Iowa), there is a debt cap. Equipment (like fire trucks) is expensive to purchase, but can be paid back over time with little problem. If a city is bucking the debt limit, they can lease
it's all in the taxes (Score:5, Informative)
With a lease you expense 100% of the amount you pay as soon as you pay it.
This is why a very common option is lease-to-buy with a very cheap buy option at the end of some number of years. This is essentially an apparently legal scam to allow you to write it all off. (It's legal because the leasor really does still own it until the end)
The next-best option is to sell the hardware the day you stop using it, because then you immediately get to write off the difference between the amount you've already devalued it and the amount you actually got for it. Because computers aren't worth anything much sooner than 7 years, you always get a tax benefit when you sell a computer that just became obsolete.
Re:it's all in the taxes (Score:5, Informative)
(The rest of this is all massively, massively approximated. I am also not an accountant.)
Say you have an originally $1000 3 year old computer that's 60% depreciated If you keep it, you'll eventually get to write the other $400 (40%) off - over the next 4 years. This might save you $200 in taxes over those 4 years.
If you sell it for $2 you get to write off the rest of it immediately - so you immediately get $398 of writeoff and $2 - or $201 you've made, and it's all right now. This equation only gets better if you get more than $2 at the end.
This tax part basically hugely exaggerates or perhaps magnifies the "money now" part of a lease, especially if you can't guarantee that you'll immediately dispose of it.
So a lease for $400/yr for three years might be $200 after tax each year, while buying it is more like $850 the first year and then it gives you some money back each additional year.
Re:it's all in the taxes (Score:3, Informative)
: The important bit is: money now is a lot better than money later ... This is what "Return on
Investment (ROI)" is all about
Actually this is "Discounted Cash Flow". Its part of ROI but ROI is more than you need to compare alternative payment plans.
Plus money now is better than money later if you are receiving it. If you are spending it the opposite is true.
A couple of things to be careful of.
Unrealistic residual values can bight you depending upon the terms of the lease. If you have
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:it's all in the taxes (Score:2)
Too bad the IRS doesn't see it that way. They can rule a legal practice abusive after the fact and go after you still. While the particular practice discussed in this sub thread has nil chance of that happening, there are a lot of people facing huge tax penalties and jail time right now because they took your philosophy to heart.
For example:
http://www.usatod [usatoday.com]
Re:it's all in the taxes (Score:2)
Re:it's all in the taxes (Score:3)
You've got a few misconceptions here.
First, it depends on the equipment. In the heyday of leasing, the IRS did assign ludicrously-long depreciation schedules for computer assets, but that's no longer a problem. It's possible to depreciate most computer equipment over 3 or 5 years (depending on whether it's a desktop/laptop or a server), IIRC.
Second, those leases that have a $1 buyout at the end aren't "true" leases, and so they don't qualify as such for tax purposes. "True" leases mean the option to bu
Personally, no. (Score:3, Interesting)
That being said, it does have certain political advantages. Having your equipment on lease ensures that the company *must* allow you to upgrade the equipment or go without.
Re:Personally, no. (Score:2)
Budget increases yes, but not necessarily for your department. At the company where I work the money from any equipment sold off goes into the general fund. Because of this we usually end up giving equipment away to other departments if they can use it.
Benefits of leasing (Score:5, Insightful)
The person you should ask... (Score:2)
Finance Issue (Score:5, Informative)
Re:Finance Issue (Score:2)
I don't fully understand it, but it sounds crooked. I think after all the lawyers are thrown to the bottom of the ocean, maybe accountants should be next to go. ;)
BTW, how does it improve
Re:Finance Issue (Score:2)
I'm not an accountant, so I'll agree with you on the first part. I will however, go a little deeper with the explanation.
Assets are something that you own, supposedly to produce some positive result. If I produce 1 million dollars in sales with 500K in Assets, the performance ratio=1M/500K=2. If I currently have 250K in computer assets and I switch to a leasing plan, the performance ratio changes from 2 to 4 (1M/250K). This indicates that I am using the things that I own (Assets) to produce more sales.
Assets and Lawsuits (Score:4, Interesting)
In a smaller company if you lease your office, the furniture, the computer hardware, basically no real assets, when you get sued (which seems to be a when not if thing, in the US market) and if you lose, you have nothing to give up.
But if you want to own the stuff you lease, that's easy too. Just need a second company, company B. Company A leases the stuff from Company B. You own and run company C, which owns and runs companys A and B. This is only a small part of a giant company chain that can exist for several reasons.
Re:Assets and Lawsuits (Score:3, Informative)
Re:Assets and Lawsuits (Score:3, Informative)
If the companies in the chain appear to exist for the sole purpose of doing business with each other, you gain precisely zero protection except for a certain sense of self-satisfaction for making things more complex than they need to be.
Yes, this is done all the time, but no, it does not afford the protection people think it does. Now, if each company does some TINY percentage of its business with one of the others, you might succeed. But if you are your only customer...it
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 eff
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:How do you get rid of old equipment? (Score:2)
I don't know about your company, but ours uses eBay.
Tax reasons... (Score:2)
a: Flexibility. But this is often overridden by the lease turms
b: Taxes. Because a lease is an expense, you can write off the full value instead of doing depreciation, which is painfully slow for computers.
OTOH, if you cycle through your computers fairly quickly and resel them, you can then write off the part that wasn't depreciated, so the tax hit for buying doesn't get to be so bad. This is the trick car rental places use, and why they sell their fleets so quickly.
Are you serious? (Score:2)
It's really easy. Take the net cost of buying a machine, divide by expected lifespan. Take net cost of leasing a machine [include shipping, and the such], divide by lease time. Compare cost per time. Pick the lower value.
Though that assumes that large companies like Fortune 100 sorts are actually make logical decisions. More likely than not, an uppity up in your company plays golf with an uppity up in the leasing co
Re:Are you serious? (Score:2)
You also have to factor in the interest rate, the possible returns of that money elsewhere, and the tax implications of depreciating capital purchases over time versus writing off expenses directly.
Re:Are you serious? (Score:2)
No, it's not really easy. You left out depreciation, the $100k non-depreciation allowance each year, whether or not capital purchases are allowed by management, disposal, etc,
Re:Are you serious? (Score:2)
There are several other considerations:
Taxes
The tax issues alone could override the costs of the equipment itself. Depending on the situation the company is it and how much taxable income it has, will completely change the dynamic of this. That's not even discussing the costs of figuring out the taxes (at points, the man power to accurately figure out what the savin
Cost Benefit of Leasing (Score:2)
Terminal Server Setup (Score:2, Interesting)
You can also lease the terminal clents.
They are simple devices, very little to go wrong and drop-in replacement is another advantage.
I'm working on a combo grid/shared memory/terminal server system atm to try and create a distributed destop TS system for our particular setup here.
Termi
Re:Terminal Server Setup (Score:2, Informative)
I would not lease... (Score:2)
I see that as waste, just like leasing. So what if you get a $1000 computer for $50 a month, at the end of the month you paid for half the system. I know it sounds good that at the e
Re:I would not lease... (Score:2)
Re:I would not lease... (Score:2)
The reason corporations lease, and get rid of old machines like PII and PIII, is not that they are obsolete, but because it is difficult to get a PII machine working with a P4 Ghost Image with such radically different hardware. Maintaining multiple images for all your P4's would be hard enough, but to maintain a version of each image for PIII and PII would be a nightmare with 20,000 machines.
There
In my experience.. (Score:2)
The reasons for leasing are twofold (Score:2)
As everyone here has said it's due to taxes. I also believe (but I'm not an accountant) but the leases don't appear as capitol purchases.
Secondly equipment can be kept somewhat up to date by replacing old with new. We all now technology changes at a rapid pace, and this allows the company to keep up.
Leasing for tax purposes (Score:2)
1. Buying something very expensive but wanting to pay over time. In this case, leasing is just like a loan with a package of services. You can value both those and see if the lease is worth while or not.
2. When a capital good is not 100% fiscally deductible. E.g. in Belgium, a car is not fully deductible. When leasing a car, the total cost is somewhat higher but is totally deductible (since the lease is a service).
In some businesses leasing is also used
Advantages of leasing (Score:5, Informative)
The advantages of leasing are primarily:
1. cash flow benefits
2. tax benefits
One of the primary things that small businesses (well, all businesses, but especially small businesses) have to manage is their cash on hand and their cash flow (when cash shows up, when it leaves) If I have to buy a $3000 server and I pay cash then I need to have $3000 cash right now and that cash goes away. If I lease that server, then I might have monthly payments of $50/month. Over the life of using the equipment I pay more, but at the outset I don't have to have all of that cash around.
Also, when you pay money to buy something of value, for tax purposes you don't take all of that cost off your profit immediately (you pay taxes on profits, not gross income) You have to depreciate it out over a period of time which is supposed to represent the useful life of the equipment. This means that while you might have paid the money out (in cash) you can't claim that they money has all gone away yet for tax purposes. Not fun!
When you lease an item the leasing company owns that capital expenditure and so they depreciate the item. Your monthly payments can be treated as expenses so they come off your taxable profits immediately. Plus you don't have to account for the depreciation, etc.
In my business most of my costs are salaries for my people, not workstations for them to use so workstation costs are a small fraction of my expenses. It makes sense just to buy a decent workstation outright rather than haggle with the lease people and try to return or buy out the eqipment later on. Other businesses will operate differently.
My $.02
Depends (Score:2)
Economy 101 for startup companies (Score:3, Informative)
Buying means spending more money to start with.
Borrowing money to buy instead of leasing would be the obvious choice IF the lender knows that you will succeed. If there is doubt about whether you will succeed with your new company, it will be very expensive to borrow the money to buy the stuff, and then leasing is cheaper.
That's it.
Lars Dybdahl.
Lease if you can Bill for it. (Score:2)
If you aren't billing clients for the cost, I would recommend going with less bleeding
Don't do it... (Score:2)
The easy answer: do {leasing, buy your own} if you can afford it, as it reduces a lot of headaches as long as your {service provider, in house staff} is dependable.
* Such as
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:Talk to the accountants and lawyers (Score:2)
No. It isn't worth it (Score:2)
Well, if you design your systems correctly your kit will still be in use long after it has depreciated.
That means *don't* put the power on the desktop where it will be obsolete in 18 months. It also means make use of *all* of your computing power. It isn't difficult, there's loads of (free) software out there to help. e.g. http://gridengine.sunsource.net/ [sunsource.net] . Oh oh oh. Look! It has that "Grid" buzzw
Leasing sucks: Let the Bean Counters sort it out (Score:5, Informative)
in my experience... (Score:2)
When I left, the leasing payments were nearly $1,500 a month, which works out to almost the cost of a new machine.
Cashflow and nice looking books (Score:3, Informative)
In one year you can choose to spend, say, 1M on IT. Or you can spend 250K leasing it every year. That leaves 750K looking good on the books and can be used to invest in other money making opportunities.
Answers (Score:2)
Maybe. Maybe. Maybe. Maybe.
Consider the useful life of the equipment (Score:2)
Workstations: 3 years
Monitors: 4 years
Laptops: 2 years
Printers: 4 years
Servers: 4 years
Phone system: 4 years
Leasing hardware (Score:5, Informative)
On the other hand, I wanted to change to leasing anyway. I time-phased the replacement schedule, so we replace 1/3 of our desktops/notebooks every year. For desktops, everyone getting new hardware every three years not only gives us a fair chance at keeping hardware fairly capable of running new software, it also cuts down on user complaints -- "They get new computers; we have to use old stuff!" Everyone knows that there's a three year cycle and when your turn comes up, you get new kit. It does also help with the disposal problem: our society is so saturated with cheap PCs that most charities, schools, and non-profits don't want old stuff. I'm willing to sell (or give, depending,) obsolete stuff to new employees but that hasn't worked terribly well in the past. Too many folks want too much support -- "Can I put a wireless network card in this old computer? What can I do to make it run this game my son bought?" -- that sort of thing. A few employees try to take advantage -- "You sold me this computer and it won't
A downside is that for most leasing companies, you have to keep the original packaging material to ship the stuff back to them three years down the road. Never underestimate how much space all those boxes are going to use up, not to mention the time you'll spend trying to match PCs, monitors, laptops, etc. to their proper box.
For servers, it means we get new servers every three years, which means that I don't have to hugely overspec the thing when I buy it in the hopes it will prove useful more than three years down the road. It also means that it gets complicated if you decide a year later that you need more memory or additional processors. The leases won't end at the same time or you buy it and end up with a box of useless kit when you return the server. It also means that for better or for worse you're going to end up doing server replacements (and all that entails, time-wise,) every three years. We time-phased this, too, so not everything gets replaced at the same time.
We recently decided to go with five year leases on the servers. The rate of cycle-eating inflation with applications hasn't been too severe lately, so we think that even if it won't be top-of-the-line three or four years down the road, we can still find something it can do. For example, if the new one gets too slow running the database, maybe it could host a different application, or a set of aplications known to play well together when hosted on the same box.
On the whole, after three years (one full cycle,) of leasing, I prefer it over buying. I spend a lot less time worrying that I'm buying too little hardware for my needs down the road and we're saving capital for other uses. I don't worry about what to do with older equipment any more and I know that when the manufacturer's warranty runs out, the hardware goes away and is replaced by new stuff with new warranties. As a smaller organization with limited resources, our little group hasn't spent noticable time on hardware issues for the past three years and that's a good thing.
Rb
pretty simple really (Score:2)
Why are you asking Slashdot? (Score:3, Informative)
Every business is different -- ask a professional what is best for your business. That's what you pay them for...
-ch
Yes and no... (Score:2)
It's about CASH people (Score:3, Informative)
Rule of Thumb (Score:3, Informative)
Every product you buy has an estimated replacement lifespan. Computers, for example, get to be about 3 years old before people tend to replace them. The cost of leases are usually calculated using this estimated lifespan.
If you are going to use a product for LESS THAN 75% of it's replacement lifespan (switch computers every 2 years), you are better off leasing. Anything longer than that, and you're probably better off buying.
Please note that the replacement lifespan is quite different than the actual product lifespan (Computers working 8+ years, etc).
~D
Leasing is NOT worth it. (Score:4, Informative)
Minor advantages, major drawbacks (Score:3, Insightful)
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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.
Tax tricks. (Score:3, Informative)
Re:tax writeoff (Score:2, Informative)
With an asset, you are then able to depreciate the asset over it's "useful life", say 3 years. After 3 years you cannot depreciate the asset any more, and you still have an "asset". something else to consider when you own, is the cost associated with replacing the equipment. You just can't throw them in the garbage, they need to be "cleaned" and recycl
Re:tax writeoff (Score:2)
> "liabilities".
You can be forced to treat leases as capitalized items if they are found to fall under the concept of "capitalized lease".
sPh
Re:tax writeoff (Score:2, Informative)
unless it's changed... (Score:3, Interesting)
5 years is a long time for computer equipment. the only thing that i've had that still has high usefullness after 5 years is an HP laserjet 4000 printer and a viewsonic 20inch monitor. a fair amount is around beca
Re:tax writeoff (Score:2, Interesting)
Re:tax writeoff (Score:2)
Makes you wonder about that company if they have structured their balance sheet explicitly to deal with lawsuits!
Re:Disposal is a Hassel (Score:2)