Leasing Versus Purchasing Technical Equipment in Today’s Economy

June 3, 2010

Governor Ed RendellCommonwealth of Pennsylvania225 Main Capital BuildingHarrisburg, Pa 17120

Dear Governor Rendell:

I am enclosing my report, Leasing Versus Purchasing Technical Equipment in Today’s Economy for

The Commonwealth of Pennsylvania. The report shows the benefits, advantages, and disadvantages of

purchasing and leasing computer networking equipment for both large scale and small companies. I believe it

will help the government to become balance with the budget and set an example for the rest of the nation.

In my report I gave a clear descriptive decision on where I stand on the issue of purchasing or leasing;

although, it really does depend on the issues facing a company, school, or university. However, I am concerned

that the state is not using their resources properly and can benefit greatly by reducing cost, and still have high

productivity within the government, slash taxes and have the budget balanced with other added benefits. On

page 8 and page 9 of my report you will find more information on approval through leasing companies and

software licenses.

Please call me if you need further information on any of the points addressed by the report. I’ll be glad

to supply it.

Sincerely,

Lora Hodder

Enc

2

Leasing Versus Purchasing Technical Equipment in Today’s Economy

By Lora HodderMay 24, 2010

Eng 216 SpringB 2010DeVry University

3

Leasing Versus Purchasing Technical Equipment in Today’s Economy

Prepared forGovernor Ed Rendell

Commonwealth of PennsylvaniaMain Capital Building

Harrisburg, Pa

Prepared byLora Hodder

Student Eng 216 Spring B 2010DeVry University

Online ClassesMay 26, 2010

4

May 24, 2010

Summary

Leasing or purchasing computer equipment or software can be a difficult decision in any business, but

learning the advantages and disadvantages can help to make an informed decision. Areas to consider

when looking at computer leasing or purchasing are cost analysis, software/hardware requirements, lease

agreements and tax benefits. Points to remember when considering areas are the size of your company,

the number of employee’s, what the needs are now, what the forecast predictions are of the future, and

what type of business it is. (Wilson, 2004)

These are all ideas, purposes, and areas that can change what the needs of the company are and if it is a

better plan to purchase or to lease computer equipment or software. Another consideration when your

business is looking into the possibility of leasing software is talking to a broker. A Software Broker

knows everything your company needs, or needs to do, in order to lease software agreements.

The best way to debate which choice is for your company, leasing or purchasing, is to determine if your

company is going to make a profit from either of the two. Leasing is all about the profit; purchasing is

all about planning a profit. (Henderson, 2010)

5

Table of Contents

Summary page 4

Table of Contents page 5

Introduction page 6

Discussion page 6

Conclusion page 11

Recommendations page 12

References page 13

Appendixes page 14

6

Introduction

Leasing or purchasing computer equipment or software can be a difficult decision in any business, but

learning the advantages and disadvantages can help to make an informed decision. A company can lease

or purchase any part of a computer or the entire networking system depending on which is economical

for the company. Advantages in leasing are basic but expensive. Disadvantages are more complex.

Leasing has the benefits of no-hassle cash on hand, or credit check approvals, easy to upgrade and you

can right it off at tax season (it’s a tax benefit), but you never own the equipment so be careful about

what you do with it, or the data you put into it rather. And, consider how long you are going to have the

equipment, if it is longer than 3 years, it’s a better deal to buy. (Resnick, 1993)

Advantages of purchasing equipment are simple and basic. Disadvantages of purchasing equipment are

just as simple, but more direct. Leasing equipment seems more economical for large businesses

operating more than 50 employees or for business types in the fields of medicine, banking, or computer-

related industries with a large employee, client base or an electronic turnover rate. Purchasing equipment

may be preferred under certain circumstances. One such circumstance is how long you plan on using the

equipment before an upgrade. Another is Worrying about destroying a computer or component, because

of sensitive information. You know it was wiped clean properly.

Discussions

In the economy of today even before it started to decline, it was, and still is, revolving around

technology. You could not and still can not, walk into a company or organization and find an office or

cubicle without a computer, printer, or fax machine. Every one’s business runs on technology, some

older and some newer, but everyone has some type of it in their office, business, company, even in their

home and school.

7

Today’s market has many options for computer equipment, both hardware components and software. A

company can lease or purchase a computer or the entire networking system depending on which is

economical for the company. There are a few issues that need to be addressed and a few areas of the

company that need to be looked at first. Not every company has the same needs and not every business

type will benefit from using the same economical tactics.

There are small companies that will not benefit from leasing, and there are some that will. Same style

can be used with new business owners, some will benefit, while others will not; it depends on the

situations of each company owner and the needs of the company. (McMeen, 1990)

The company can lease equipment ranging from PC’s to backup systems, and everything in between. All

peripherals like copiers, printers, or software and network hardware. At the end of the lease agreement,

the company decides if they want to keep the equipment or replace with a newer set up with newer

technology.

This can actually save some companies start-up fees or credit depending on the state of the company’s

financial outlook. Some Lease Company’s may also have an option to upgrade during your lease period,

instead of waiting until the end of your lease to replace with newer technology, you can replace while

you are in an agreement (read the fine print).

There are advantages to leasing computers and computer equipment, but there are also disadvantages.

As with any business venture both need to be considered, analysis’s need to be made, and a forecast

determined. Using cost analysis, software and hardware requirements, and lease agreements most

companies can decide if leasing or purchasing is right for them. (Henderson, 2010)

Advantages in leasing are basic but expensive. The simplicity of leasing is easy, no-hassle, just call,

walk in or enter the website. There is no long paperwork; a credit check and a deposit are not required,

which is convenient for small business or new business owners who may not have cash-on-hand. Most

businesses can use their lease fees as a tax deductable, because it is used for business purposes. Most

leasing companies will offer upgrades to the leased equipment or even a buyout, of course the buyout

8

will have a price tag, but the equipment will belong to the company with no more payments. (Nolo,

2007)

Leasing is a way of obtaining equipment which is otherwise unaffordable. If your company needs a

piece of equipment that is very expensive and your company just can not afford to buy it, your company

can lease it. Leasing will allow your company to obtain the equipment needed, for a specific amount of

time, for a specific price, and once the lease agreement is over; you can re-negotiate or give back the

equipment.

Disadvantages are more complex. The company will have a contract with the leasing company called a

lease agreement, the company will have a set price with a set number of computers and required

instruments for computers (routers, modems, printers, faxes, NICs, network cables, etc…) regardless of

what happens to the company in the future (downsizing, merger, etc…) that lease agreement is active

and the company is required to pay that set price. There is also a clause in lease agreements, “you break

it, you bought it”, the leasing company doesn’t really care what happen to the equipment, just that they

can not re-lease it. (McMeen, 1990)

Most times smaller companies, 50 or under employees do not have a need for lease agreements because

of the cost, lease agreements, and extra equipment, but it is a business venture that will be decided by

each company. If you are a medical supply company under 50 employees, you may have a need to lease

computer equipment. Although, it seems smaller companies lease due to the convenience of the listed

advantages. My chart will show this static on the appendix page. (Lee, 1991)

You never own the equipment, another disadvantage to leasing, so be very careful about what you put

into the equipment, for at the end of your lease agreement it must come back out. The company data is

safe only for the amount of time you have the computers and computer equipment. (Wilson, 2004)

Software and hardware issues are another disadvantage to leasing, hardware needs to be compatible with

your current systems, as well as the software; but software leases are a little different. A software broker

must investigate the circumstances that brought a company to want to lease software. There are several

questions that must be asked before software can be leased:

9

Does the software vendor offer financing?

Is the software cost greater than $25,000?

Is the user’s credit standing relatively high?

Has the user leased hardware?

Is the software license transferable?

If the company does not answer “Yes” to all or most of these questions, a software lease agreement is

not established. (Bazrod, 2006)

A software lease is almost the same as a hardware lease, you get to pay for the software you need for the

computer and/or computer network system over an amount of time as agreed upon. The difference, at

the end of a hardware agreement you have the option of giving back the equipment or a buyout, at the

end of a software agreement you get to keep the software and software license. (Bazrod, 2006)

You also have extra administration when you lease, meaning your company is not the only one that

determines what software you add to the computer PC’s, or what virus protection you use or update.

You actually have to get the O.K. from the leasing company because they are the actual owners of the

computer system. Your system was delivered with programs pre-installed, and in most cases that is

enough to run the business. The leasing company will ask what you need, and provide it before delivery,

if there is anything else you need during that time, when there are troubleshooting issues that need to be

performed, or programs that fail or need added, deleted, modified, etc…you need approval from the

owners (the leasing company) of the equipment.

Purchasing equipment may be preferred under certain circumstances, but it too has its advantages and

disadvantages. For example, if your company plans on using the equipment for more than 3 to 5 years, it

would be in your company’s best interest to purchase the equipment because there is no turnover rate.

(Nolo, 2007)

Advantages of purchasing equipment are simple and basic. Your company wants to fulfill requirements

of law, by keeping data safe, and controlled, then a purchase of the equipment needs to be made.

Familiarity and acceptance with purchasing requirements, skills, and techniques are used with

10

professionals in handling the equipment, the company employees are familiar with the equipment, and

their skills are being used, there is no new training class for new computer equipment. There are

responsibilities and management systems for purchased equipment, the management systems are

handled in-house not by the IT department at the Leasing Company, where your company has to call in

every time there is a problem and wait for them to take care of it or give you the O.K. to fix the problem

or do an upgrade. That can slow productivity, call volume, billing issues, and client/customer

satisfaction. Purchasing avoids lease agreements and the complexities that go along with managing

them. There is an ability to maintain and upgrade the equipment you purchase as needed or when

needed, this option is not available with a lease. You have the ability to add your own software,

programs, or updated virus protection to your own systems, because they are yours, there is no approval

to get. (Nolo, 2007)

Disadvantages of purchasing equipment are just as simple, but more direct. The purchase of computer

equipment may hinder your company’s ability to take advantage of technological advances when the

technology becomes available. As models become out dated in that 3 to 5 year time span you are unable

to update as quickly as if you were leasing the equipment from the leasing company. Your company’s

equipment may become obsolete before you can afford new equipment, or to upgrade the equipment to

newer equipment. This can cause a slow down in the performance of the technology and computer

enhancements of the employee’s work. Disposing of the out dated equipment can be time consuming

and costly. The life-cycles of the IT expenditures are decreasing. (Nolo, 2007)

The warranties on new purchased computers are normally one year; you can purchase an extended

warranty for an additional price but the longer the warranty the higher the price and it only covers

defects and certain problems that might go wrong with the machine. It does not provide you with any

upgrades. If there are any modifications that are planned for the computer system, it will void any

warranty.

The initially cost is expensive; to purchase an entire computer networking system will run a company

close to hundreds of thousands of dollars. The cost for the computers to startup or replace the terminals

11

for employees can cost thousands of dollars for a small company under 50 employees. I have included a

table in the appendix; it is a basic table with the cost of a computer versus the cost of a computer lease.

It will show the initial cost of purchasing and the payment plan of a lease.

Technology is not cheap, even in an economy that is falling, but still dependent on it. We pay for it, one

way or another.

Conclusions

We need to know the ins and outs and the basics to leasing and purchasing before making a decision

either way because it could cost our company a lot of money. Making an informed decision in today’s

economy could be the very thing that saves our business from going under. There are so many jobs

being lost, so many businesses going bankrupt or laying-off employees with the hopes that by cutting

back today will give them a tomorrow. (Kaplan, 2007)

Looking at leasing or purchasing computer equipment as a business investment might not seem like an

ideal business move, but reality is, why not? What is the difference between leasing a computer

networking system and renting your top floor business space?

With leasing or purchasing computer equipment, it all depends on the business, the amount of

equipment, and the needs of the company.

The bottom line to leasing is that it helps you obtain what you need now, but you pay for what you get.

Leasing is over-priced, because it can be. You want it now and you are going to get it now that is what

you are paying for.

When it comes to purchasing the bottom line is if you can buy it outright with no repercussions, no

drawbacks and no regrets then do it. It is your company and only you know what is best.

12

Recommendations

My recommendations are to do what is best for your company. I have really no opinion either way. My

research into leasing or purchasing computer systems and software has left me with great information for both

options, but it really depends on the company, the needs, and the circumstances of the times and financial out

look. Without having any kind of individual knowledge of an individual company’s outlook, I could not make

and informed recommendation.

I will however, give my thoughts towards each approach. If you are a new business owner with little money, or

no cash on hand, and few employees to start up your business, regardless of the type of business you are

operating, I think leasing would be a better choice than purchasing.

It will allow you to still have little cash and the equipment you need now with little or no hassle involved.

If you are a multi-billion dollar operation looking to upgrade your 5 year old computer network system, and you

routinely upgrade every 5 to 10 years. You like to be in control of your own company (which is why you own a

company), and you either know what you need or you have the people under you that know what you need, I

recommend Purchasing your equipment. You will have the equipment for a long time and you will be able to

make your own decisions regarding updates, troubleshooting issues, programming, etc…

The ball is in your court, but do the research first, find out as much as you can about the equipment you need,

how long before you are going to need an update (if possible) and what the pro’s and con’s are of each option as

they pertain to you and your company.

13

References

Bazrod, M., (2006, February, 27). Software leasing and the lease broker Wayne, PA: LPI Software Funding Group, Inc

Henderson, W. (2010). Advantages and disadvantages of equipment leasing. Retrieved from http://ezinearticles.com/?Advantages-and-Disadvantages-of-Equipment- Leasing&id=2481127

Kaplan, J. (2007, November 14). Corporate recycling. PC Magazine, 29(5),

Lee, J. (1991). The Productivity factor: justifying your computer purchase. Washington DC: National Society of Public Accountants.

McMeen, A. (1990). Equipment leasing guide for leasees. New York, NY: Albert R McMeen.

Nolo, (2007, January 27). Buying vs. leasing computer equipment. Forbes Magazine, 24(7), 56-57.

Resnick, R. (1993, July). Leasing versus buying. (microcomputers) Compute! Magazine, (154), 68.

Wilson, T. (2004, February 1). Lease versus purchase. Tech & Learning, (1920), Retrieved from http://www.techlearning.com/article/1920

14

Appendixes

Purchases vs. Leases by Company size

Purchased computer

Purchased networks

Leasesed computers

Leased Networks0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Large CorporationsMedium BusinessesSmall companies

Comparison Price Table Purchase versus Lease

Purchase Price Lease Price Length of Time Total Lease Price

1x $150.00 1x 20.00 12 months $240.00

2x $150.00$300.00

2x 40.00 24 months $960.00

4x 150.00$600.00

4x 40.00 48 months $1920.00

50x 150.00$7500.00

50x 250.00 60 months $12500.00

**This is for a computer sales only, prices vary. I used a rounded figure; this does not reflect the actual price of a computer product.