When properly managed, leasing, rather than purchasing IT equipment for your organization has numerous benefits. Most significantly, leasing provides additional flexibility that owning does not. Examples include:
- With leasing you can match the term of the lease to the projected usage of the equipment. For example, if you refresh laptops and/or tablets every 24 months, you can write 24-month leases with your leasing partner. The leasing company will take an equity position in the equipment (the “residual value”) and you’ll only pay for the two years’ worth of usage. In other words, you will have to keep – and pay – for the equipment only as long as you need it. This can lower your total cost of ownership (TCO) of that IT equipment.
- Extended warranties, licensing, maintenance programs, and other add-ons can be financed in a lease as well. Also attractive from a cash-flow perspective, you can spread these “soft” costs over the term of the lease.
- Also, a lease agreement will often give you the option of upgrading your equipment mid-term, by extending or rewriting the lease. You can bring in new equipment, take out old or no-longer-needed equipment, and rewrite the lease or enter into a new lease with your leasing partner.
- Leasing protects against obsolescence. Lease terms can be flexible and the lessor (the IT provider) shoulders the future value (residual) risk in the equipment rather than your organization.
- While companies need to develop and implement a disposition strategy for the IT assets they own, in a lease situation the lessor handles all of that – saving your company considerable hassle and expense.
The best way to maximize these benefits is to manage your leased assets proactively. Companies lose a significant amount of capital every year due to poor asset management discipline. All companies, regardless of size, need to adapt good, solid asset management practices. These should include:
- Planned refresh cycles that work with the term of the lease. Delayed product refresh cycles can result in escalating total cost of ownership for leased equipment. Your company will have to pay additional rent (typically called “month-to-month rent”) to the leasing company for not returning the equipment at the expiration of the lease term. To reduce the risk of obsolescence, ongoing maintenance costs, and additional rental payments, work with your IT provider to develop and manage a planned refresh cycle. Both of your organizations should be proactive in managing the refresh cycle well before the end of your current lease.
- Manage the lease agreements with the leasing companies you work with. This means having a proper notice period well before the end of the lease (we recommend 180 days), whereby the leasing company notifies your firm in writing that the lease will be expiring. In this notice, the lessor should state when the lease expires and give your company a purchase price option, a renewal option, and a return option, which should include the location to which the equipment will need to be shipped. Your organization will need to notify the leasing company on a timely basis of your intent to purchase, renew, or return the equipment, so don’t miss that window! If you do, in many cases the lease will automatically renew for a predetermined period of time and those extra renewal payments will raise your total cost of ownership while also increasing the profit for the leasing firm. The key is to be diligent in managing your leases!
Even if you lease IT assets, your organization is liable for data security and the proper disposition of the equipment. In future blog posts we will discuss how to ensure that both you and your lessor are “doing it right” in these important areas of equipment sanitization, data security, and resale/disposition.