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Financing Computers for Business?
Mercutio asks: "OK, I've been handed the responsibility of acting like a grown-up and changing from my normal day-to-day IT job to actually making decisions involving someone else's money. Specifically, I've been asked to deal with all the variables associated with purchasing/leasing computer equipment (desktops, laptops, printers etc) and I'm feeling a bit out of my league. Anyone have any tips for dealing with leasing or financing equipment, companies to avoid working with, or mistakes made in past leasing/purchasing arrangements? Any company that was really great to work with? Any help is of course appreciated.
Thanks."
GE Capital wasn't bad to deal with. Can't remember who we use now (Also can't remember why we switched. Or if we did. It's been a few years since picking up a new lease on equipment). A couple of things to recommend:
Make sure vendor doesn't get a good portion of the money until AFTER the contract is fulfilled. We had a big problem with this. Partially our fault, partially the lease company (not GE in this case). Which leads me to number two: make sure the finance company is dealing with only one person: YOU. YOU are the one who has to sign off when various stages of delivery are met. You are the one who has to be happy. They are not to send a dime to the vendor unless you say so.
Talk to your accountant. He can best explain to you what the terms should be from a tax and cash flow basis. Any advice to the contrary should be taken with a grain of salt. CPA's speak the language of the IRS.
Have a good idea now if you will be keeping or returning the stuff at lease end. If returning, budget for saving all those boxes. It will make life much easier. We always buy out at the end of the lease, so we pitch the boxes (saving a couple for shipping in case of bad unit after the lease is final). When making this decision, don't forget the cost in 3 or so years of reinstalling all these machines.
One thing I could never get an answer to: who owns the licenses, you or the lease company? I have a feeling this is something that may become an issue in the future. My reading is that all of the equipment is the property of the lease company. Reading the standard MS licenses, they may not be sold, transferred, leased, etc. Considering you are a random slashbot, I doubt you have a site license. But I could be wrong. Our policy: if M$ comes knocking, block the door. If they show up with subpoena's, torch the building. Actually, we have more licenses than machines running MS OS'es, but they are poorly documented.
See if you can swing a service contract for the length of the lease. It really pisses off CEO's to be paying for machines that are dead and/or costing money to repair. Also, your lease company might require it. BTW, this also depends on the savvy and time availability of in house folks.
To sum up:
1. Hold back some money (25% is a good amount) to make sure the vendor satisfies you.
2. Make sure one person and one person only can release money from the leasing company to the vendor.
3. Talk to CPA.
4. Begin making the decision now whether to buy out lease or return equipment.
5. (optional) Talk to attorney about licenses.
6. (optional) Consider service contract for length of lease.
Jesus was all right but his disciples were thick and ordinary. -John Lennon
Whatever you do, standardize the initial hardware config and image and get the vendor to load it. Also include everything you have a site license for in that image, then add user specific software/hardware. Sounds like an obvious no-brainer but it's AMAZING how many places I've seen that shop for cheapest price all the time and end up supporting dozens if not hundreds of different hardware configurations, different software versions, etc. What a mess. In the end, Total Cost of Ownership is far cheaper when you can manage a very homogenous environment. Ghosting out images whenever you have a serious desktop problem is wonderful. So is unpacking the PC right at the users cube and having it already imaged. You can allot a maximum time for desktop troubleshooting.. say 10 minutes.. past that it gets blasted with new image, done. No-Brainer. Over time one or two images for desktops and one or two for laptops will become impossible unless you have a small company, but keep it under control and you'll be a hero.
Operator, give me the number for 911!
...but it's even better after it's been translated to Chinese and then back to English with babelfish:
Good, I are handed over the motion are likely grown-up and the change work from my normal every day its responsibility to in fact make the decision involve the others money. Concrete, I are requested processing all variables and the purchasing/leasing computer equipment (tabletop, on knee computer, printer association and so on) and I feels the position outside mine union. Any person has all definitely skillfully for the processing lie or the financial equipment, the company avoids working at, or wrongly violates through the leasing/purchasing arrangement? Is truly great work any company? Any one help is certainly appreciated. Thanks.
How are you going to keep them down on the farm once they've seen Karl Hungus?
To be honest just get an accountant (it may cost a little up front but could save you thousands down the road), they will know exactly what you want for a lease or purchase and will be able to tailor it for you tax/financial purposes. A good accountant can make the difference between owing more tax and not.
To respond to those asking for more information:
I work for a training company. I'm solely responsible for, at the moment, about 150 non-uniform beige boxes in five different locations. The company only has five full-time employees, but a horde of part-timers. I am the IT department. Just me. Everyone else teaches non-technical classes or has an administrative role. Maintaining 150 random beige boxes, mostly with super-cheap generic motherboards, is exactly as nightmarish as it sounds. Ghost helps a lot but can't fix everything.
I've gotten approval to purchase 60 PCs over the next month, but we're a small business and this is a decidedly large-scale endevour for us (I understand that the PCs we now have were purchased maybe three or four at a time, on a cash basis). I'm completely re-building our network infrastructure - putting in 802.11b and laptops for the full-timers, actual 100Mbit everywhere (and Cisco hardware for my classes), setting up a couple of file servers and dedicated internet access at the remote sites.
That's the plan, at least.
The down side of this is that I have no earthly idea how to properly evaluate financing options vs. leasing vs. paying for equipment outright, and since I've never personally done purchasing for anything NEAR that much equipment, I don't want to be subject to the whims of the salesdroids I'm going to be talking to in a couple of weeks.
To anyone who replies, I thank you very much for your thoughts.
-- I wanna decide who lives and who dies - Crow T. Robot, MST3K
Basically, leasing and financing are all about cash management, they have very little to do with the value of the computers. That is, if you lease you nearly always get screwed. By the end of the lease you have pretty much paid for the computers but they take the computers away from you.
If you want to know the value get have the vendor quote out the price for leasing and buying up. Figure out the difference in the amount of money you have to hand them. You if you plan on getting new computers by the time the lease is up, and the lease costs less money probably lease them. Especially if the company won't make money of disposing of the computers when they buy new.
Now, if the lease costs as much (or more), or you believe the computers will have value after then end of the lease period, it's probably a buy situation.
Now there are some situations, like where I work, were we don't buy computers, we lease them, even though it's not cost effective by the standards I said before. The reason for this is cash management. It's in the best interest of the business to hold onto as much cash as possible because if it isn't cash flow positive (yet). So we hold onto the cash to keep the doors open as long as possible. Possibly the leasee will get screwed if we go bankrupt. Cash is king to a small business so we don't like giving it up until the last possible instant.
The other interesting issue with leasing is it gives you a lot of leverage. They still have to treat you well to get the money you haven't given them yet. Nice thing to have.
The reason you do financing is for two reasons. Either the deal isn't good enough on the lease, so you really want to buy them because it's a better value. So you go find a bank, get better loan terms from them, so the buy option w/ loan is better then the lease. Especially if you do a lot of business with a bank now, this makes a lot of sense. Now the bank has the equipment as collaterial, the terms are as good as buying, but better then leasing, and you haven't coughed up all the money up front.
The other reason to finance is because the company you want to buy equipment from doesn't do leasing. You can finance the computers and essentially lease them from the bank.
There's some other stuff I really don't understand (okay I understand it even less than what I just explained). Leasing has to be booked differently (as a monthly fixed expense I believe) which is good in the eyes of a lot of investors. Financing has to be booked as some variety of debt (effectively it's just a loan). Buying gets booked as a capital expense. All of this has a lot of tax implications, and accounting implications. Go find the person who does your books, make them help you make this decision. You're not a business guy, you shouldn't be making this decision. You should be spec'ing what you need, and who you want to do business with. The final decision as to what is the best value for the company as a whole is out of your realm of knowledge (and mine for that matter).
Normally all have buy options at the end of them. Be sure to get the buy option spelled out up front so if you need to keep the equipment because you haven't secured a replacement you can. Also find out what happens if you have to keep the equipment just one more month. Do you have to buy, or can you lease for just one more payment? Does the payment go up?
So all of this sums up to doing two things. Get all the options in front of you, figure out how much each one will cost you over the life of the computers. Now you know which one is "cheapest", you have to weigh when you are going to give up the money, and what makes the most sense from the business prospective. Leasing and Financing allow you to hold onto cash which in a lot of cases is more important then a marginal increase in cost to the business. Find the accountant/tax person, and have them help you with what makes the most financial sense above and beyond the merely technically implications of it.
Kirby
My home lab has two Dell Precision 210 workstations, with a KVM box to a common monitor. I bought them used on UBid for about $300 each. They still work great, even after a corporation banged on them a couple of years.
What I really like about them is the "no tools" cases. I can flip up/open just about everything just by releasing latches. I wish the cabling was longer, but they've been good for me.