In the current down economy, the financial services offered by companies are really highlighted. As a small business owner, you should be on the look-out for creative promotions that might allow companies to continue to invest now, even in a down economy.
I sat down with Sean Cunningham of Dell Financial Services (DFS) to get a better idea of why leasing may be a good option for small businesses right now and what DFS is all about.
So, I asked Sean to go over the pros and cons for leasing technology.
If your small business needs faster computers with more storage space and increased mobility for employees, leasing technology can really help you stay on the cutting-edge over time. Leasing can also stretch your budget. With a fixed annual IT budget, a company can get more equipment -earlier in the budget cycle- when it leases compared to purchasing the same equipment as a capital asset.
An example: Let’s say we have two companies: “A” & “B” and both have identical, fixed annual IT budgets. Both companies are growing and need as much technology as their budgets can afford. Both will spend 100% of their fixed budgets on acquiring technology each year for three years.
Company A chooses to lease their equipment for the three years and make fixed payments with the option to purchase the equipment at the end of the lease for its then fair market value (FMV), while Company B elects to make a one-time purchase.
Company A could lease roughly 3X the number of computers as Company B in year one. In years 2 and 3, Company A continues to use its computers and make fixed monthly payments while Company B acquires more computers each year. By year 3, both companies have acquired the same number of computers but Company A is poised for an upgrade and has several options at the end of the lease that include applying for a new lease for the latest equipment and returning the old equipment; continuing to lease the existing equipment either on a month-to-month basis or for fixed term; or, purchasing the existing lease equipment for its fair market value at that time.
While Company B owns their equipment outright, they may still need component upgrades to run the latest software, may face higher maintenance costs as the equipment continues to age, or may still need to consider buying new equipment altogether.
Leasing is also a good alternative for companies that want to use operating budget to pay for technology, as it can be treated as an operating expense in some cases – but this is not tax advice, and customers should consult their tax advisor for details regarding their particular situation.
Computer technology is affected by wear and tear, and will require maintenance as it ages. Using leasing to rotate old gear out, and new gear in, can help customers control those maintenance costs.
Leasing with Dell Financial Services
Specifically when a small business finances with Dell, they not only gain a technology advisor in Dell, but also a proactive finance partner in DFS. The mission of DFS is to find financial solutions for small businesses that help them acquire Dell equipment and services. This might seem a bit dull and straight-forward, but really Sean and team believe their jobs require creativity.
Since they are part of the Dell sales process, (and sit right next to them) DFS provides customers a one-stop-shopping experience. Customers that finance with DFS will be exposed to offers, incentives and promotions that they can use in addition to the value pricing on the technology.
Things to consider before leasing:
· FMV Leasing is not always the best option for small businesses. If they plan on using equipment for a long period of time or do not need the most advanced technology of the day, an outright purchase would make the most sense.
· With FMV leasing, comes obligations. It’s good to remember that a lease is a contract and there are conditions and obligations that go along with that. Read the contract, ask questions.
· FMV leasing forces a decision to be made at the end of the term. Most companies offer standard options such as:
1. Extending the existing lease
2. Returning the equipment and applying for a new lease
3. Purchasing the off-lease equipment for its then fair market value