Should Managed Service Providers Lease or Buy Computer Hardware?

Should Managed Service Providers Lease or Buy Computer Hardware?

April 11

Businesses of all sizes have to make crucial decisions. For a managed service provider, deciding how to procure your IT equipment is up there with the toughest of them. Without the most basic of hardware, capitalizing on remote monitoring, IT security, and all the services you want to provide is just not a reality. While buying what you need is ideal, leasing is becoming a viable alternative MSPs can’t help but consider.

The Highs and Lows of Leasing IT Hardware

Low upfront costs. Leasing is an attractive option because it allows you to obtain the hardware assets you need without necessarily having a lot of money. Instead of paying $2,000 for a new server, you might only have to pay $50 every month with little to no upfront costs. Leasing equipment is a great option for startups and other companies that are looking for a predictable model that keeps operating expenses and cash-flow in control.

Tech-friendly arrangements. Technology becomes outdated quickly. The high-tech computer you buy today will be dwarfed by another model next year. Renting your equipment will usually keep you on par with the technological curve. It may cost you a bit more, but you generally have immediate access to the latest technology on the market. In some cases, leasing comes with additional support services that cover updates, patches, and ongoing maintenance.

Flexible payment options. I’m sure you’re familiar with the rent-to-own chains that let you nickel and dime your way to ownership. The same type of stores exist for computer hardware. In this scenario, leasing becomes a long-term investment that furnishes your IT room with all the parts that are essential to your network. Leasing can be so flexible that you’ll feel like a negotiating genius when securing an arrangement that accommodates your budget and operating needs.

Higher overall costs. The downside to the lease concept is that you come out of a lot more money in the long run. With interest rates, monthly payments and other fees, you could end up paying thousands more than had you simply purchased the hardware outright. Even if you’re renting to own, your hardware may depreciate to a point where it has very little value by the time your contract is up with the hardware company, resulting in a bargain that isn’t as great as it seemed initially.

Contractual obligations. Add all the flexibility you want. Once you’re in, you’re in. When you lease your hardware, you’re generally on the hook for the entire length of the contract. This is often the case even when you’re no longer using it. Sure, you may be able to cancel, but early termination fees aren’t designed to be light on your wallet.

Miscellaneous hassles. Leasing your equipment typically calls for you to jump through quite a few hoops. There are often countless questions, credit requirements, financial requirements, and tons of paperwork that needs to be completed. Making the decision to buy eliminates those hassles. Identify your needs, purchase it, and own it for as long as it serves its purpose.

Finding Hardware Leasing Opportunities

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Photo Credit: Andrew_Writer via Flickr

It’s a bit trickier to find vendors that lease IT equipment, but there are a few suitors out there. In one corner, you’ve got your heavy hitters like IBM who supply servers, network equipment, and even mobile devices on leased terms. In the other, you have several regional vendors that provide laptops, desktops, firewalls, and other equipment to local businesses. Managed service providers should answer a round of simple, yet important questions when deciding whether to lease or buy their IT hardware.

How much you got? The decision to buy or lease ultimately comes down to budget. Do you plan on upgrading your technology on a regular basis? If you need a full complement of inventory, yet don’t have the jack to pay for it all at once, leasing is a smart option.

What kind of lease is it? Hardware is generally leased in two formats: capital leases and operating leases. With a capital lease, you enjoy benefits such as breaks from tax depreciation, and bear the burden of risks like your IT assets becoming outdated and useless. In an operating lease, your equipment becomes an operating expense instead of a tax deductible asset. The operating variety is more common and favorable because it can be obtained on short terms that don’t tie up money for too long.

What are the terms? Terms get pretty complex when you’re talking about leasing equipment. How long are you locked in for? 24 months? 48 months? A lengthy contract will keep your payments low and manageable, but you’ll pay substantially more in the end. Does the hardware need to be insured? Can the lease be amended? This is stuff you have to know before renting your IT equipment.

Are you supporting customers? Fulfilling the hardware needs of clients is another source of recurring revenue for MSPs to explore. Customers who purchase your mobile device management offering may be willing to rent some of the equipment you have on hand as well. In this case, buying would be the smart choice, since you can recoup your money and add to it with a smart leasing strategy of your own.

What are your app needs? Hardware is generally rendered outdated by two factors: time and app technology. Now that Windows XP has exceeded its end of life cycle, companies are flocking to buy equipment that supports the recommended Windows 7 and Windows 8 upgrades. When app usage is so crucial that you regularly have to upgrade to new equipment, then the inventory of perspective vendors will come into play. If rental vendors can’t keep up with the dynamics of your complex IT environment, then buying may be the most logical option.

Buy, Leasing, and Cloud Coverage

Nowadays, managed service providers have the luxury to say forget about purchasing or even leasing hardware, and opt for the cloud. In the Infrastructure-as-as-Service (IaaS) as model, companies can procure the networking resources needed to run their applications, store their data, and manage their operation on a day to day basis. Since the assets are administered in a virtual environment, you technically don’t have to deal with any hardware as it is physically maintained by the service provider. With private and public arrangements available, cloud computing is arguably the most flexible hardware solution for managed service providers in need.

The right path to procuring IT equipment is a situational thing. Buying can help you save money and control your destiny. Leasing can help you stretch your dollar and grow the business at your own pace. The cloud can provide you with all the on-demand flexibility you can ask for at the price of risks that are still being determined. Put your own list of questions together and find out what works best for your situation.

Top Photo Credit: mricon via Flickr