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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."
If it was a server, I think a major factor would be how far in advance could you get your boss (if you have one) to buy replacement servers so that you can start migrating the services to the new system. A lot of times, server and service migrations take longer than expected and so you might wind up having buy the server outright at the end of the lease because you aren't ready to migrate yet. Its not like leasing a car (which I do) where you can just take your stuff out, put it in your garage and then go swap cars.
I can't say that I'd ever consider leasing unless it turned out to be MUCH cheaper. Old hardware can always be reused and/or sold off for temporary budget increases. Not to mention that high-wear equipment like laptops tend to break, thus requiring you to pay for the damage.
That being said, it does have certain political advantages. Having your equipment on lease ensures that the company *must* allow you to upgrade the equipment or go without.
Javascript + Nintendo DSi = DSiCade
One area where leasing stuff is useful is during lawsuits.
In a smaller company if you lease your office, the furniture, the computer hardware, basically no real assets, when you get sued (which seems to be a when not if thing, in the US market) and if you lose, you have nothing to give up.
But if you want to own the stuff you lease, that's easy too. Just need a second company, company B. Company A leases the stuff from Company B. You own and run company C, which owns and runs companys A and B. This is only a small part of a giant company chain that can exist for several reasons.
For easy management why not try out a terminal server system? The clients can leased easily, and the ease of managment should free up a bit of your guys time. your boss will like it because of the effect on the bottom line.
You can also lease the terminal clents.
They are simple devices, very little to go wrong and drop-in replacement is another advantage.
I'm working on a combo grid/shared memory/terminal server system atm to try and create a distributed destop TS system for our particular setup here.
Terminal servers would be a good option to check out.
--cros13
Many Government agencies don't lease. At least the Federal Government agencies I've worked with all tended to purchase equipment rather than lease. I can't speak for local and state government. The only reason I can figure for leasing for the Government is that their initial budgets are limited, and they can "buy" more equipment sooner, and then pay for the out-years using Operations and Maintenance money rather than Procurement money. You have to remember that Government agency budgets contains lots of different pots of money. Moving money from one pot to another can be quite difficult, so they may need to lease just because of which pot the money came from.
It's 5 or seven years that you take depreciation. a couple of years ago i bought some hardware. the tax man (H&R) said that to get the full dep i had to keep the stuff 5 (or seven) years. he said that if it was junk, i should put it in the basement until we were done depreciating it.
5 years is a long time for computer equipment. the only thing that i've had that still has high usefullness after 5 years is an HP laserjet 4000 printer and a viewsonic 20inch monitor. a fair amount is around because it still has *some* usefullness. but there's been an amazing amount of stuff that was junk before 5 years was up.
so, i can see the tax benefit for leasing (computer equipment).
eric
It's not as simple as that - I am a lawyer - and tax is one of my areas of interest. The rule is - that you can expense leased equipment and take a full deduction for the cost of lease payments as long it is a true lease and the payments and final buy out price do not make it look to the IRS like a disguised sale. If it looks like a disguised sale - the IRS will reclassify the lease as a sale and deny the deductions and make you depreciate it over it's listed useful life - without going into opter options like section 179 expensing or double declining balance depreciation...
The second constraint is that those doing the maintenance have no ties to you, which mean that they don't have to do anything effective. I've been in companies where "guaranteed support" from contracts really didn't exist. The contracts had too many get-out clauses and fine-print, exempting them from any kind of quality of service, even though we were paying through the nose for those extra guarantees.
The third problem is that you're likely to get refurbished equiptment with an unknown history and minimal to no quality control. Even if there were checks, though, reliability is an unknown. From electron migration to thermal damage on chips to hairline cracks in the motherboard - there are many faults that are hard to identify in any simple laboratory test, but which are exceedingly likely for older equiptment.
Security is a big issue, these days. You think a refurbished server or router is going to be running fully-patched, fully-tested environments? Chances are, even those who own the equiptment will have no idea of what is actually running. It is unlikely, but possible, that "logic bombs", root-kits and other hard-to-spot malware may be running on the device when you get it.
Buying a commercial off-the-shelf solution is not perfect and won't PROPERLY fix any of the above, but it's a better bet for anything that is mission-critical.
The "ideal" is to buy the component cards from the manufacturers, assemble & burn-in test in-house, and then deploy. Then, you have 100% control over the steps and actually can provide a higher level of assurance. True, it won't have any fancy warranties, but as downtime is the most expensive part of any IT operation, fancy warranties that companies rarely honor anyway are of little value.
The gratest fallacy in IT is to rely on stickers, labels and other scraps of paper. (a-la the certification issue discussed on Slashdot recently.) These things add nothing and frequently cost lots. What adds value is whether the hardware works and works well.
If you want the job done right, do it yourself. That has been true for hundreds of years, and if modern practices have changed things at all, they have made it all the more important to remember.
It's a small world and it smells funny; I'd buy another if it wasn't for the money; Take back what I paid (SoM)
If you operate a scam or fraudulent company, it works out nice. When the Feds confiscate the company assets - none of it is owned by the company.
I have done a lot of work installing desktops & servers that were under lease. The hidden pot of gold to the leasing company comes at the end of the lease. Over 90% of businesses are not ready to return the equipment at the end of the lease. They need to arrange upgrades, replacements, new software, whatever. But the leases are financed such that all the costs are covered by the end of the lease, say 36 months. And if the equipment is not returned on the anniversary date, the monthly payments continue until it is returned, or the client buys out the equipment. These payments after 36 months are almost all total profit to the leasing company. HP Financial, Dell Financial and GE Capital all make a killing at this point.
If your business is proactive and arranges to replace the equipment as is comes due you do OK, but most get fleeced for 3 or 4 months, some over a year until they can make a decision and implement it.