Leasing vs Owning?

feature from: Dominion Post, Waikato Times, Christchurch Press October 2007

I am often asked whether it is better to lease or own IT equipment and about the hosting of servers and overall ownership of data. These topics are closely linked and come down to flexibility, security and cash flow.

Buying new IT gear  puts you into a high capital expenditure situation, affecting your cash flow for that financial period. Borrowing money from a bank can tie up lines of credit that could be used for other projects.

Often leases on IT equipment work out in favour of leasing on this front, meaning that essentially the ‘net cost’ of the asset is much the same either way. This means the tax implications are usually a moot point. The upside of buying equipment is that you have complete ownership – but I believe  ‘ownership’ is a much misused word in IT. The downside of buying is that you have zero dynamic ability with that equipment to move quickly in another direction without further large capital expenditure.

Leasing, on the other hand, offers huge flexibility. There is major risk in becoming too rigid within your IT infrastructure and a SME’s ability to remain dynamic in the marketplace is critical to business success.

Leasing should give you the options of upsizing, downsizing, moving sideways and beyond with ease. If not, you should be renegotiating your lease. The great strength is that it should retain a manageable cash flow while you move within your industry. Capital expenditure can hurt you in IT - I believe unnecessarily.

In industries where equipment has a long life and low rates of obsolescence, then buying can be the correct option – but this isn’t the case with IT. At best you should be writing owned equipment off over 36 months, if not 24-30.  Most equipment used by a SME will be worthless after this.

One of the major reasons SME owners give for purchasing IT – particularly server  equipment - ,  is the ability to ‘own’ data rather than having  it hosted offsite. I believe this is one of the greatest fallacies in the current marketplace. Cost wise, there is little difference whether keeping data onsite or offsite. However there are massive benefits to holding data in a remote location on leased equipment – as long as you ensure that you retain ‘ownership’ of data and can have access with 48 hours notice.

The levels of security, maintenance and accessibility – ‘fast’ access from internet based locations - gained from having your data in a tier-1 datacentre with a well structured system for offsite access, completely outclass keeping and managing your data onsite.

If you have onsite servers you should be asking: When were the backups last checked? Are the server backups covering the email or just server data? Do I know that these are working? Are we seeing monthly reporting on this? Is someone taking some of these backups offsite in case of disaster/theft? Do we have a disaster recovery plan? Is it current? Has it been explained to us? Do we know the process?

I am regularly shocked at how blasé some owners are about their data when often it is the lifeblood of their business. Almost all these issues disappear or are totally managed in a hosted solution - which is why many SME operators are choosing to move this way.

In 90% of cases, it is more productive, efficient and cost effective to host data offsite and lease equipment. The other 10% are often limited by technology - however this will change. Hosted solutions and leased equipment essentially future-proof your organisation. These things should be being covered with you by your provider within your IT road map. As with leased individual machines, the ability to be dynamic with leased servers is multiplied given the importance they have in a network infrastructure.

If you have not considered the benefits, or are unsure of the possibilities of leasing, it is definitely worth investigating.

Patrick Kershaw is a Business Partner for Horizon Pacific, a nationwide technology support provider specialising in assisting SME’s with all their technology requirements. For further information, go to www.horizonpacific.com