Is Leasing Really Worth It?

llamaluvr asks: "As I understand it, there are some financial benefits for businesses leasing hardware equipment. Does anybody know what exactly those are, and how much they really help? Do they really outweigh the additional costs of replacing, repackaging, and returning old hardware? How do the size of the business and the computing environment affect these benefits? Additionally, what is the best balance between leasing and purchasing equipment -- would leasing desktops and laptops, but purchasing monitors be best, or should one just lease everything?" "A little bit of background: I work in the IT Operations department for a BU of a Fortune 100 company, and we lease practically everything right now. We have 4 full-time employees for about 800 workstations, and, while we seem to have enough manpower for managing projects and tickets, we have a tough time getting to returning the equipment, so a lot of it is already late. Complicating this is that many of these PCs are in a harsh industrial environment, and often have at least one failing part, which then costs us a fraction of the entire workstation (for example: a busted floppy might cost us $150 or more, unless we test the PC and replace the part, of course). Corporate has been more attentive to this drain on our time and money lately, and they have talked of outsourcing this process, but in the meantime, we're stuck with it. BTW, we lease IBM equipment through ePlus."

Comments

Wrong question to the wrong audience

[CaptainZapp]

Mate, your question makes about as much sense as asking "How long is a piece of string?".

For starters: I assume that you're in the US, but could imagine that some of the tax laws, which apart from keeping your liquidity fluid, but for a price, is about the only fathomable reason why you would want to lease in the first place, differ from state to state.

If it's a matter of keeping your gear in top notch condition and fixed 30 minutes after failure you might be better advised with a support contract including a service level agreement.

Cutting to the cheese: You are better advised to ask your CPA, or if you insist on getting fancy, your tax attourney.

HTH, HAND, etc...

Re:Wrong question to the wrong audience

[Otter]

Also, be aware that whether you lease and how you structure the terms affects your assets (and therefore your ROA and similar ratios based on assets), classification of cash flows and all sorts of other accounting arcana. This doesn't matter in a small private company but damn well does to a Fortune 100 firm.

Other people are telling you to leave the decision to someone else -- my advice is that if you want to understand how the decision is made, that's great and you should look into it! Just realize that you want to talk with the accounting and finance people, not with the folks here. Slashdot is for evidence-free arguing about Linux TCO, not about the stuff affecting this decision.

Too Many Factors

[American AC in Paris]

Dear Slashdot,

As I understand it, sin(x) can have values between positive 1 and negative 1. Is my x going to be positive or negative?

A little bit of background: I have a value of x somewhere between 0 and pi.

Snark aside, this really isn't an issue where you should be guided by ancedotal evidence posted to Slashdot. You're working for a Fortune 100 company, for crying out loud--you need a carefully-planned methodology, not a bunch of yammering 'experts' giving you off-the-cuff advice on a very complex problem...

Re:Too Many Factors

[American AC in Paris]

Dear Slashdot,

As I understand it, I'm a total freakin' idiot when it comes to basic trigonometry.

Where do I go to turn in my geek badge?

Re:Too Many Factors

[bonzomcgrue]

>> Is my x going to be positive or negative?

This isn't a complex problem requiring carefully-planned methodology. Your x is going to be positive.

You provided a helpful clue here:

> I have a value of x somewhere between 0 and pi.

Please tell me how to collect my cash and valuable prizes.

Leasing vs. Purchasing, short version

[192939495969798999]

If you lease, you pay less now. If you purchase, you potentially pay less later. However, there are complications on your taxes for either (depreciation vs. amortization, lease payment costs, etc.) In General, I would expect purchasing to be a better deal unless you are expecting to have high turnover of machines and volatility of business (i.e. contract job only requiring machines for 12 months = definitely lease!)

Benefits of leasing

[ajs]

• Depending on the lease terms, you may simply get replacement equipment once your current is obsolete (e.g. workstation is a couple revs out of date).
  
• Tax benefits can be dramatic. Speak to your tax accountant / lawyer.
  
• Depreciation of assets can look very bad on a publicly traded company's books. To avoid this, many public companies lease as much as they can.
  
• Often leasing means consolidation. In this day of CDW and the like, that's not as big a benefit, but it used to be huge.
  

There are probably other advantages I'm not thinking of. Of course, the down side is that you can't just treat the hardware as your own. Your developers (if you have any) will be especially displeased to hear that they're not allowed to just slap in some RAM or a hard-drive they had lying around.

Talk to the accountants and lawyers

[anomaly]

This idea made no sense to me back in the days when I worked for a 'Big Six' accounting firm - you know, when dinosaurs roamed the earth?

However, at the time, this organization was legally a limited liability partnership. As such, any assets were problematic for a couple of reasons.
1. Capital expenditures must be depreciated over a multiple year cycle - you may pay $10K for that box, but you have to treat the box as if it's worth $10K this year, $6K next year, $3K the next, etc. We all know that computers depreciate more rapidly than cars, and there's no way that you could recoup 60% of the purchase price 12 months after purchase of a box. Expenses, however, are written off as they happen. Spend $10K on a lease this year, and you write off $10K THIS year.

2. You also show no value for that asset because it's not yours. This matters when the partners are concerned that a lawsuit loss might cause assets to be liquidated and LLCs like to have as few assets as possible. The less there is, the less that can be taken - or so the thinking goes.

So, it may cost more actual dollars the way you're doing it, but I bet that the accountants and lawyers have it figured out so that it's really in the best interest of your organization to 'waste' that money.

Hope this helps!

Regards,
Anomaly

Re:it's all in the taxes

[SunFan]

This is essentially an apparently legal scam to allow you to write it all off.

When it comes to reducing taxes, nothing is a scam if it is legal. Paying the lowest tax allowable by law is every citizen's duty to their country.

Re:Leasing servers

[Zen]

My company has a weird take on this. We are a large US based Healthcare company. We buy most of our largest servers (We're an IBM shop: Mainframes, Regatta's, etc). But we typically lease a lot of our midrange UNIX based systems. Our Windows servers are all bought and paid for, as well as all the backend switches/routers/etc. But desktops are leased for about $50/month, and laptops are leased for about $80/month. Monitors are purchased as far as I know. I believe we're on a 3 year rotation for the desktops and laptops, and the ones we've been getting in for the past couple months are 2.8Gig P4's, 60-80GB HDD, etc, so they're pretty decent machines. Laptops are the IBM T41 and T42 series, so they're good as well. I've heard that the reason we no longer buy the desktops is that we were never able to sell the old ones before because of tax purposes (we are not a for-profit company), and it took many years to write the assets off on taxes. Another big reason for the leasing of the desktops is for quicker support. We have dedicated in house people for hardware RMA's with onsite storage of common parts, so a fried system can be replaced within a few hours. You can get a good service contract with purchases, but I would assume it would cost more than with leases.