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Is Leasing Really Worth It?

Cliff posted more than 9 years ago | from the rent-to-own dept.

The Almighty Buck 378

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."

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Leasing servers (5, Interesting)

suso (153703) | more than 9 years ago | (#12145917)

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.

Re:Leasing servers (1)

INetUser (723076) | more than 9 years ago | (#12146045)

I agree and support your conclusion.

Buy servers (at end of lease or up front), leaese desktops and laptops. Migrating them is easier than migrating a server.

My experience leads me to believe that the useful life span of a server longer than a desktop or a laptop.

Re:Leasing servers (5, Informative)

strider5 (15284) | more than 9 years ago | (#12146249)

One other thing to consider:

leasing is a straight-forward writeoff for tax purposes while buying will involve amortizing the cost over multiple tax years.

Re:Leasing servers (5, Informative)

Rei (128717) | more than 9 years ago | (#12146144)

Also: If the poster is in an environment where things tend to break often, leasing is probably not for them. The whole point of leasing is that the item being leased gets use beyond what you would put it through, thus extracting enough extra value from it such that it proves cheaper for your company and still provides enough extra profit to the leasing company to justify their expenses. If the item tends to break on your watch, you might as well just purchase.

In general, leasing of anything is optimal if:
A) The item has a long usable lifespan (i.e., damage from use is minimal) and low maintenance costs compared to purchase costs
B) The lessee only needs it for a short time
C) Item devaluation is minimal

Does this really describe your business model here?

????? Huh (-1, Offtopic)

Parker703 (767865) | more than 9 years ago | (#12145919)

What happing?

Woot (-1, Offtopic)

TheZeusJuice (766754) | more than 9 years ago | (#12145926)

First Post?

Re:Woot (1)

TheZeusJuice (766754) | more than 9 years ago | (#12145975)

Argh, too late! Anywho, I've actually wondered this myself often. I've noticed I'm always coveting the latest and greatest laptops, but I dont get them because I already spent allot of money on the current one, and its still good (so, basically, I cant justify the purchase). However, if I were to lease, I can just change laptops after the lease is over. The thing is, I really dont know excatly what happens if I break it, through negligence or accident, or how much it would cost for that matter.

tax writeoff (1, Redundant)

Xavic (826170) | more than 9 years ago | (#12145934)

i am not for sure be i believe you can write it off as an expense rather then an asset when you lease. ask an accountant...

Re:tax writeoff (2, Informative)

KungF00 (237281) | more than 9 years ago | (#12146051)

I am not an accountant (and I don't play one on tv). When you buy, you get an asset. Remember from accounting 101, assets = liabilites + owners equity ?

With an asset, you are then able to depreciate the asset over it's "useful life", say 3 years. After 3 years you cannot depreciate the asset any more, and you still have an "asset". something else to consider when you own, is the cost associated with replacing the equipment. You just can't throw them in the garbage, they need to be "cleaned" and recycled.

Leasing on the other hand falls under "liabilities". All things being equal, more liabilities would make your Owners equity smaller (see equation above), thus resulting in a "smaller" bottom line, thus having to pay less taxes.

There are probably 1000's of other reasons out there as well.

Re:tax writeoff (1)

sphealey (2855) | more than 9 years ago | (#12146236)

> Leasing on the other hand falls under
> "liabilities".

You can be forced to treat leases as capitalized items if they are found to fall under the concept of "capitalized lease".

sPh

Re:tax writeoff (0)

Anonymous Coward | more than 9 years ago | (#12146240)

Leasing on the other hand falls under "liabilities". All things being equal, more liabilities would make your Owners equity smaller (see equation above), thus resulting in a "smaller" bottom line, thus having to pay less taxes.
There are two major kinds of leases - purchase leases and operating leases. Go and look up the difference.

Then come back & tell me, I forgot ;-)

Re:tax writeoff (1)

werewolf1031 (869837) | more than 9 years ago | (#12146086)

i am not for sure be i believe you can...

Dude...

Put.

The beer.

Down.

Sheesh.

Wrong question to the wrong audience (5, Insightful)

CaptainZapp (182233) | more than 9 years ago | (#12145936)

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 (4, Insightful)

Otter (3800) | more than 9 years ago | (#12146182)

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 (5, Insightful)

American AC in Paris (230456) | more than 9 years ago | (#12145938)

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 (3, Funny)

krunchyfrog (786414) | more than 9 years ago | (#12146041)

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

Mmmmmmmm pie...

Re:Too Many Factors (0)

Anonymous Coward | more than 9 years ago | (#12146057)

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.


Meaning your 0 < X < pi. Meaning X > 0. Meaning X is positive. So... what exactly were you showing? Obvious answer or too many factors?

Re:Too Many Factors (0)

Anonymous Coward | more than 9 years ago | (#12146210)

Uhm, meaning you still can't determine the sin(X) given the info provided. This is basic trig, come on.

Re:Too Many Factors (0)

Anonymous Coward | more than 9 years ago | (#12146246)

Is my x going to be positive or negative?

The question wasn't to determine sin(X).

Re:Too Many Factors (0)

Anonymous Coward | more than 9 years ago | (#12146058)

the answer is: positive.

the real answer... ask your fucking accountants - it's just paying in different fashion anyways and if were only talking about leasing some hardware and not the support along with it then it's just about how you pay for the thing.

Re:Too Many Factors (4, Insightful)

American AC in Paris (230456) | more than 9 years ago | (#12146123)

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 (0)

Anonymous Coward | more than 9 years ago | (#12146158)

Me thinks this article is just an advertisement for ePlus.

Re:Too Many Factors (0)

Anonymous Coward | more than 9 years ago | (#12146218)

Umm... to recap:

-1 < sin(x) < 1
0 < x < pi

therefore, x > 0.

So, to answer your question, yes, x is positive.

Leasing vs. Purchasing, short version (5, Insightful)

192939495969798999 (58312) | more than 9 years ago | (#12145940)

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!)

buy everything. (0)

Anonymous Coward | more than 9 years ago | (#12145944)

just buy everything and replace it every couple of years. machines are cheap enough so that leasing is not really any more cost beneficial.
expensive equipment should be leased. everything else should be bought with long warranties+onsite service.

Re:buy everything. (1)

sub7 (187049) | more than 9 years ago | (#12146065)

Just buy a $40,000 Sun box and replace it every few years... good call! ;) I would assume the quested stated is in regards to more expensive hardware (servers, Sun, IBM, HP, etc.) as opposed to desktops, laptops and workstations.

Just my $.02 -

- j

No an expert (1)

Virtual Karma (862416) | more than 9 years ago | (#12145945)

I'm not an expert in this but as with any sort of leasing you will have to hand out the additional buck upfront but you can save a lot of overheads. Will it be more expensive? yes ofcourse... but then you can save on huge investments right away.

Disposal is a Hassel (1)

9mm Censor (705379) | more than 9 years ago | (#12145949)

Think of the hassel that you have to deal with when you are getting rid of lots of computers.

Re:Disposal is a Hassel (1)

Arbin (570266) | more than 9 years ago | (#12146222)

Have a 'lil Hasselhoff on the brain? It's hassle...

Like everything, it depends (1)

tmasssey (546878) | more than 9 years ago | (#12145950)

There are financial and tax ramifications of holding equipment on the books for extended periods of time, versus leasing. Some companies like the enforced need to keep their equipment current, others like being able to hold onto their equipment until it is beyond recovery.

Like just about every business decision, the answer is a solid "It depends".

It's all about taxes (4, Informative)

mencik (516959) | more than 9 years ago | (#12145951)

When businesses lease equipment, they write-off the whole amount in that tax year. If they purchase equipment, they have to depreciate it over a number of years. With the large amount of IT equipment, keeping track of what was purchased when, and how much has been depreciated is a CPA's nightmare. Thus, the equipment is leased, even if it ends up costing more money to get lesser capable equipment.

Re:It's all about taxes (1)

EccentricAnomaly (451326) | more than 9 years ago | (#12146104)

that makes sense... but why do government agencies lease then? They don't care about tax breaks...

Re:It's all about taxes (2, Interesting)

mencik (516959) | more than 9 years ago | (#12146157)

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.

Re:It's all about taxes (1)

kin_korn_karn (466864) | more than 9 years ago | (#12146181)

Because the accounting for depreciation is very labor-intensive and difficult. The government doesn't do any work it doesn't want to.

Re:It's all about taxes (1)

mencik (516959) | more than 9 years ago | (#12146216)

Bzzzzt! Wrong! The Government doesn't pay taxes, thus doesn't have to do any accounting for depreciation. The Government may not do any work it doesn't want to, but that's not the reason here.

it's all in the taxes (5, Informative)

arete (170676) | more than 9 years ago | (#12145955)

Basically, it's because the tax law depreciates most of that hardware over something like 7 years. So in the first year you'll get to write off something like 20% of the value.

With a lease you expense 100% of the amount you pay as soon as you pay it.

This is why a very common option is lease-to-buy with a very cheap buy option at the end of some number of years. This is essentially an apparently legal scam to allow you to write it all off. (It's legal because the leasor really does still own it until the end)

The next-best option is to sell the hardware the day you stop using it, because then you immediately get to write off the difference between the amount you've already devalued it and the amount you actually got for it. Because computers aren't worth anything much sooner than 7 years, you always get a tax benefit when you sell a computer that just became obsolete.

Re:it's all in the taxes (5, Informative)

arete (170676) | more than 9 years ago | (#12146122)

I decided I should clarify this. The important bit, which I just sortof assumed, is: money now is a lot better than money later, especially because as a corp you probably borrowed money from somewhere, so you're paying interest on anything you have to spend now. This is what "Return on Investment (ROI)" is all about - to spend more money on something it has to be worth substantially more in the long term, not just a little more.

(The rest of this is all massively, massively approximated. I am also not an accountant.)

Say you have an originally $1000 3 year old computer that's 60% depreciated If you keep it, you'll eventually get to write the other $400 (40%) off - over the next 4 years. This might save you $200 in taxes over those 4 years.

If you sell it for $2 you get to write off the rest of it immediately - so you immediately get $398 of writeoff and $2 - or $201 you've made, and it's all right now. This equation only gets better if you get more than $2 at the end.

This tax part basically hugely exaggerates or perhaps magnifies the "money now" part of a lease, especially if you can't guarantee that you'll immediately dispose of it.

So a lease for $400/yr for three years might be $200 after tax each year, while buying it is more like $850 the first year and then it gives you some money back each additional year.

Re:it's all in the taxes (5, Insightful)

SunFan (845761) | more than 9 years ago | (#12146168)

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.

Personally, no. (2, Interesting)

AKAImBatman (238306) | more than 9 years ago | (#12145969)

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.

Re:Personally, no. (1)

Ironsides (739422) | more than 9 years ago | (#12146102)

Old hardware can always be reused and/or sold off for temporary budget increases.

Budget increases yes, but not necessarily for your department. At the company where I work the money from any equipment sold off goes into the general fund. Because of this we usually end up giving equipment away to other departments if they can use it.

Benefits of leasing (4, Insightful)

ajs (35943) | more than 9 years ago | (#12145971)

  • 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.

The person you should ask... (1)

fm6 (162816) | more than 9 years ago | (#12145976)

...is your accountant. The advantages of leasing versus buying exist in the world of tax writeoffs and accounting rules. Asking Slashdotters about that stuff is as dangerous as asking them for legal advice.

Slashdot is not the best place for this (1)

JonathanX (469653) | more than 9 years ago | (#12145979)

Techies generally have no clue when it comes to things like this...myself included. The best policy is to simply specify the equipment you need and then let the beancounters figure out how to pay for it. That's why they exist. It's not your job to project revenue, track depreciation of assets, understand the tax code, etc, etc.

Taxes (0)

Anonymous Coward | more than 9 years ago | (#12145981)

Taxes and tying up your current money have a lot to do with leasing. If you lease something, you pay less now and get to deduct it all. If you buy it, you have to pay more now and take several years to deduct it. Often longer than the useful life of the hardware. That means you have to keep a bunch of machines around that are worthless, but if you were to get rid of them or give them to charity it would cost a large amount in taxes.

I've slowly been learning that a lot of really bizarre and stupid business practices are 100% driven by the IRS.

Finance Issue (4, Informative)

Hamfist (311248) | more than 9 years ago | (#12145987)

Leasing effectively moves the value of the leased item out of the Fixed Assets of the balance sheet, reducing the overall fixed assets. This has the result of improving the ratio of asset turnover, a prime measure of business performance. It also has an effect on the operating statement, as it becomes a straight cost. It is a much more transparent way to deal with something that will probably get cycled out within 3 years. As others have mentioned, your tax benefit mileage may vary.

Re:Finance Issue (1)

John Seminal (698722) | more than 9 years ago | (#12146043)

Leasing effectively moves the value of the leased item out of the Fixed Assets of the balance sheet, reducing the overall fixed assets. This has the result of improving the ratio of asset turnover, a prime measure of business performance. It also has an effect on the operating statement, as it becomes a straight cost.

I don't fully understand it, but it sounds crooked. I think after all the lawyers are thrown to the bottom of the ocean, maybe accountants should be next to go. ;)

BTW, how does it improve buisness performance? As what? Something an investor looks at on a sheet of paper? Or as something the company sells and produces better?

Assets and Lawsuits (3, Interesting)

DeathFlame (839265) | more than 9 years ago | (#12145988)

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.

Re:Assets and Lawsuits (2, Informative)

jerdenn (86993) | more than 9 years ago | (#12146142)

Actually, it's not that simple. If there is a demonstrable relationship between the companies, they are 'related' ventures, and assests of all of the related companies may be subject to the suit.

How do you get rid of old equipment? (2, Insightful)

wren337 (182018) | more than 9 years ago | (#12145989)

One thing I have heard from the hosting group is that when a group buys a server, it's difficult to migrate off of it once the hardware is obsolete. You can't really sell it easily, and who would you sell it to? It still runs, so how do you get the business owner to pony up for newer hardware? Before you know it you're heating the server cage with a half dozen Apollo DN3000's.

When the client is paying hardware rent every month it's easier to say "good news, for the same rent you can get the latest hardware".

Leasing! (0)

Anonymous Coward | more than 9 years ago | (#12145990)

Leasing is 48% better than outright purchase.

Except in New Jersey, Pennsylvania and Ohio, where the difference is only 42%.

Dear SlashDot (0)

Anonymous Coward | more than 9 years ago | (#12145992)

We seem to be losing money due to an unbalanced lease agreement. I just wanted to ask you, is that bad?

Tax reasons... (1)

nweaver (113078) | more than 9 years ago | (#12145993)

The big reasons to lease

a: Flexibility. But this is often overridden by the lease turms

b: Taxes. Because a lease is an expense, you can write off the full value instead of doing depreciation, which is painfully slow for computers.

OTOH, if you cycle through your computers fairly quickly and resel them, you can then write off the part that wasn't depreciated, so the tax hit for buying doesn't get to be so bad. This is the trick car rental places use, and why they sell their fleets so quickly.

No write-off potential (1)

Cobblepop (738291) | more than 9 years ago | (#12145996)

Remember that leased equipment can't be donated to schools after its useful life has expired, which is a common avenue for corporations to write-off fairly large amounts (as if a broken 14" CRT is worth $200 to an elementary school).

Are you serious? (1)

Telastyn (206146) | more than 9 years ago | (#12145999)

Did you take intro economics? or at least pay attention to elementary school word problems?

It's really easy. Take the net cost of buying a machine, divide by expected lifespan. Take net cost of leasing a machine [include shipping, and the such], divide by lease time. Compare cost per time. Pick the lower value.

Though that assumes that large companies like Fortune 100 sorts are actually make logical decisions. More likely than not, an uppity up in your company plays golf with an uppity up in the leasing company.

Re:Are you serious? (1)

Chirs (87576) | more than 9 years ago | (#12146224)

Obviously you haven't taken economics either.

You also have to factor in the interest rate, the possible returns of that money elsewhere, and the tax implications of depreciating capital purchases over time versus writing off expenses directly.

Cost Benefit of Leasing (1)

Ironsides (739422) | more than 9 years ago | (#12146002)

Leasing equipment vs. Buying equipment depends on how and how long you are going to use the equipment. Think about how people buy/lease cars with this. If you are going to keep a car for 6 months/3years you might as well lease. If you are going to keep it until it has 225k miles on it and the headgasket is going, buy the thing. Same with PCs. If you want to keep your PCs always at the latest and greatest, lease. But for those you are going to keep and upgrade (thin clients and low power pcs qualify here). Buy the things. You get into accounting problems with depreciation, but you can keep the desktops past their 3 year derpeciation cycle if they will still do their job. For example, we have P1-133s here that are used as thin clients on a dual P3-800 terminal server that is shared amoung several people. Cost to replace with new machines for everyone (or lease) would cost several $k and wouldn't provide any improvement over what they do now. However, for those of us in engineering that need higher power computers between CAD programs and other types need relatively recent computers (2ghz+) and can't use thin clients. Two options for that is to either buy new machines every couple of years or lease. We get new machines however, they are then passed down the line to people who don't need new ones (thus saving money).

Re:Cost Benefit of Leasing (1)

Jimslam (469781) | more than 9 years ago | (#12146047)

The very best way for companies to handle the issues at hand is to form a separate entity (i.e., LLC or Corporation) to buy the equipment, then lease it to the original company. In this way, they get the tax write-offs of leasing along with the depreciation of the hardware itself, and the opportunity to nicely divide some income (allowing in some cases lower tax brackets in each entity).

In this case, it would solve the issue of needing to return the hardware and the high costs of low-end hardware failure (such as the floppy drive). Instead of outsourcing, how about they "insource" by forming a separate entity and keep the money all within the company.

Terminal Server Setup (2, Interesting)

Cros13 (206651) | more than 9 years ago | (#12146010)

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.

lease thing that are centeral (1)

gunthnp (466598) | more than 9 years ago | (#12146012)

leasing desktop are waste of time unless you want to be in a continual upgrade cycle rent server that change a lot a blackberry server or even email rent thing where the software upgrade cycle matches the hardware one

Capital vs. Expense (1)

isa-kuruption (317695) | more than 9 years ago | (#12146014)

Most companies have two budgets: Capital and Expense.

Capital budgets are spent on capital goods, usually, like computer hardware, employees, buildings, etc. Things the company plans to keep around.

Expense budgets are used for such things as paying the electric bills, water, coffee, etc. The thing is, consultants also fall under this category (as opposed to a full/part time employee which are capital) as well as server leases (as opposed to purchases which are capital).

So in some cases a company may have a lot of extra money in the expense budget, but not the capital budget. Because said company is also irrational, there is no way to transfer some of the expense budget to capital in order to pay for needed hardware. This, therefore, requires the VP of said corporation to lease the hardware with his expense budget.

I would not lease... (1)

John Seminal (698722) | more than 9 years ago | (#12146015)

I know of companies that lease, and they spend alot of $$. One guy worked for a company that purchased new computers every 18-24 months. They auctioned off their old systems to help pay for the newer ones. Thier thinking is they would never be stuck paying 100% of the cost of a new computer network, they were always upgrading.

I see that as waste, just like leasing. So what if you get a $1000 computer for $50 a month, at the end of the month you paid for half the system. I know it sounds good that at the end of the year you could get new computers, but you are still paying! You are always paying.

I worked at a company that had nothing but PII 400's. They worked perfectly fast for all buisness functions. I could use the database, word, excel, internet. I could have 10 windows open and it worked.

I think computers are being sold like snake's oil elixer, as a cure to everything. Have problems, upgrade!

Easier accounting? (1)

dballanc (100332) | more than 9 years ago | (#12146021)

One benefit is less paperwork I'd think. If a company 'owns' it, you have to deal with depreciating the equipment over IRS acceptable periods. I've got a computer still on a depreciation scale despite not having a single original component. A non-profit company I work with insists on keeping, and tagging replaced/repaired components as proof of work done on a PC. The extra overhead/paperwork costs money.

Besides, business is about making money, and cash flow. Assets may be cheaper than leased equipment from one perspective, but consider that extra money 'now' has better payoff in most businesses than the cost saving that will take the life of the purchase to recover.

In my experience.. (1)

James_G (71902) | more than 9 years ago | (#12146025)

If you buy your own hardware, it's much harder to convince management to upgrade it 3 or 4 years later when it's ancient technology. Where I work, we used to lease equipment, and it was always upgraded on a fairly regular basis. One day they decided it would be more cost effective to buy our own, which we did. That was 6 years ago. We still have people using P2-400 machines with 128MB of ram. This is horribly inadequate for our needs, but once management has realised how much money they can save by having sub-standard equipment (and it's a lot of money), you'd have an easier time getting blood from a stone than convincing them to upgrade.

This is almost certainly a false economy, btw - the amount of productivity lost by having crappy hardware must be massive, but it's hard to quantify compared to, say, the cost of 500 brand new, top of the line machines.

So, I would say, buying your own will be cheaper in the short term.. but it could end up biting you later on in a way which is very hard to measure.

It depends what the eq does. (1)

rice0067 (220981) | more than 9 years ago | (#12146026)

If you don't need lots of computing power, ie.. just for office stuff I would probably say that with todays prices I would buy. I work at a big biotech, and have a brand new 3ghz pc with win2k, but I really dont need anything more than a P-133 and win95 for most of the stuff that I do *at my desk that is* .
If you need to stay ahead of the curve on speed, like if you do imaging, then I would lease.
You say that you the machines are in a heavy industrial area, so you would probably need to calculate failure rate along with the cost of fixing the machine (time, parts, etc.)
All in all I would say buying is better, but then again, leasing might look better on the books, and we all know how important that is these days.
They would say, better take a constant, slight hit every quarter than to possibly tank stock prices because of a huge equipment purchase.

but what do i know. The only 2 reasons I don't use a NeXT for every day stuff is ordering on the web and mp3s. Other than that a nice NeXTSTATION is all anyone really needs.

Leasing is for lazy accounting practices (1)

haystor (102186) | more than 9 years ago | (#12146027)

Leasing something means that you can count the lease price against revenues during taxes. You only have one number to deal with.

Buying means depreciating the cost of the item usually over a number of years. So that computer you bought and used for just one year may stay on the books for a few more years. Also, it's still an asset that must be accounted for. If you liquidate the computer later and you've depreciated it, you have to claim any money you received as income.

Leasing is far more expensive than purchasing. There may be some support reasons as to how a leased computer gets replaced, but that is more a matter of support than lease vs buy. Leasing also tends to come in just a few packages so computers are more interchangeable.

Generally for the managers needing a computer, it's easier to get a lease approved than a purchase because money is put off until next year. Also, it's easier for a manager to get a lease approved than to work out accounting details of software.

There are certain threshholds that dictate whether you can write something off entirely or have to depreciate it. Once you cross those, most companies will lease.

It's much the same reasons that a company will hire a contractor for 20 years instead of an employee.

Talk with your Company's Accounting/Finance Dept (1)

swaha (101157) | more than 9 years ago | (#12146028)

I suggest that if you want the whole picture on this is that you talk to the finance and accounting departments in you company. What my seem like a straight forward decision on your departments part may have a negative impact on the company as a whole.

Fixed Expenses Duh! (1)

sub7 (187049) | more than 9 years ago | (#12146030)

From a managerial accounting perspective it's more profitable if you have more fixed costs than variable. So if you already know what your fixed costs are (and you will as you know what you're paying monthly on the leased hardware) you can increase your degree of operating leverage.

Once you break even the profits are much larger than if the equipment was purchased directly than manipulated and expensed quartly/monthyl/etc.

A lot of company's lease testing enviroments so they can just swap them out once testing is done. That's what the company's I have worked for did. 4 floors worth of datacenters and nearly 75% of all the AIX, Sun, and IBM machines were leased.

- j

Re:Fixed Expenses Duh! (0)

Anonymous Coward | more than 9 years ago | (#12146252)

Why do you pluralize "company" by adding "'s" yet not do the same with "expense," i.e. "expense's?"

See also "costs," "profits," "environments," etc.

The reasons for leasing are twofold (1)

genkael (102983) | more than 9 years ago | (#12146040)

The reasons for leasing are twofold.

As everyone here has said it's due to taxes. I also believe (but I'm not an accountant) but the leases don't appear as capitol purchases.

Secondly equipment can be kept somewhat up to date by replacing old with new. We all now technology changes at a rapid pace, and this allows the company to keep up.

Leasing smooths out the wrinkles (1)

L. VeGas (580015) | more than 9 years ago | (#12146050)

In a perfectly fluid business environment, it would cost approximately the same over the long run to buy or lease.

Theoretically, leasing equipment (of any type) means less hours are devoted to non-core business issues, and it allows you to compute your costs more precisely. The tax advantage you referred to is that the entire cost of leasing is fully deductible every year, but a capital expenditure requires you to depreciate it for several years. Again, theoretically, those numbers should wind up being pretty close.

But, the devil is in the details. What works for one business may not work for another. You need to actually crunch the numbers to make sure.

Accounting issue (1)

sagneta (539541) | more than 9 years ago | (#12146061)

This is actually an accounting and cashflow issue.
Essentially it comes down to the rate of return of the equipment vis-a-vis the companies cost of capital.

If the return on the equipment is greater than the cost of capital it makes sense to lease. Now within this calculation you must take into account the cost of maintaining the equipment. That is subtraced from the rate of return along with anything else you deem important.

I am simplifying here as I don't want to write a book but it comes down to this:

It is irrational to purchase equipment with money that could earn a greater return elsewhere. It is irrational to use cash to purchase equipment if you can borrow at a lower rate than the plant produces.

You also don't have depreciation which can look bad on the books. Ask your accountant concerning GAAP and IAAP.

Leasing for tax purposes (1)

ites (600337) | more than 9 years ago | (#12146062)

Two scenarios in which I'd lease something:

1. Buying something very expensive but wanting to pay over time. In this case, leasing is just like a loan with a package of services. You can value both those and see if the lease is worth while or not.

2. When a capital good is not 100% fiscally deductible. E.g. in Belgium, a car is not fully deductible. When leasing a car, the total cost is somewhat higher but is totally deductible (since the lease is a service).

In some businesses leasing is also used as a way of turning capital goods into money, but this is again just a form of loan. A mortgage on the goods. Governments enjoy doing this before elections so they can boost their "income".

First Post! (0, Redundant)

syntap (242090) | more than 9 years ago | (#12146064)

Damn, I leased this post when it was new and now it's old. Likewise with leased equipment I guess.

Advantages of leasing (5, Informative)

dancornell (95530) | more than 9 years ago | (#12146066)

I am not an accountant, but I am a small business owner so I have some idea about this stuff.

The advantages of leasing are primarily:

1. cash flow benefits
2. tax benefits

One of the primary things that small businesses (well, all businesses, but especially small businesses) have to manage is their cash on hand and their cash flow (when cash shows up, when it leaves) If I have to buy a $3000 server and I pay cash then I need to have $3000 cash right now and that cash goes away. If I lease that server, then I might have monthly payments of $50/month. Over the life of using the equipment I pay more, but at the outset I don't have to have all of that cash around.

Also, when you pay money to buy something of value, for tax purposes you don't take all of that cost off your profit immediately (you pay taxes on profits, not gross income) You have to depreciate it out over a period of time which is supposed to represent the useful life of the equipment. This means that while you might have paid the money out (in cash) you can't claim that they money has all gone away yet for tax purposes. Not fun!

When you lease an item the leasing company owns that capital expenditure and so they depreciate the item. Your monthly payments can be treated as expenses so they come off your taxable profits immediately. Plus you don't have to account for the depreciation, etc.

In my business most of my costs are salaries for my people, not workstations for them to use so workstation costs are a small fraction of my expenses. It makes sense just to buy a decent workstation outright rather than haggle with the lease people and try to return or buy out the eqipment later on. Other businesses will operate differently.

My $.02

not worth it (1)

unk1911 (250141) | more than 9 years ago | (#12146081)

leasing equipment is expensive and ends up costing more. sometimes companies don't have a choice though.

--
http://unk1911.blogspot.com [blogspot.com]

Depends (1)

duffbeer703 (177751) | more than 9 years ago | (#12146085)

In some cases, you can deduct the entire lease amount in the first year -- which is a big tax savings, especially since you can include things like MS Office if purchased with the hardware.

I Won't Lease (1)

SmartSsa (19152) | more than 9 years ago | (#12146087)

As a small business owner/operator, I won't ever lease.

I refuse to pay 20 to 30% more for hardware that is completely useless when I'm still paying for it.

I prefer to accumulate assets for my company (even though they depreciate, like any asset) rather than debts, and long term contracts for leases.

If I were a larger company, I'd think slightly differently of course. If I needed 15 computers right now, a lease would be an option - but I'd still only do it if the rate was better than a bank loan -- and that's rare.

As for actual costs, and actual writeoffs it depends on your local laws. Here if I purchase a whole computer, say $1500, I can write off 30% in the first year for depreciation, totalling $450. If I lease one I can write off 100% of the payments, if I get a "deal" and am only paying 20% on a lease, my payments are roughly $50/mo, totalling $600/year writeoff.

There is a writeoff advantage, but does it outweigh the difference in cash paid for the computer? Probably not. But again, too many variables.

Depreciation (1)

Marthisdil (606679) | more than 9 years ago | (#12146088)

It all comes down to how you have to do the depreciation.

With leasing, you just treat it as an expense, just like say, buying copier paper.

With purchasing and depreciating, it's like any other asset. The IRS has rules as to how fast you can depreciate it, etc, etc.

You know whats not worth it? (1)

GatesGhost (850912) | more than 9 years ago | (#12146099)

writing on /. all the mods are cocksuckers. GO FUCK YOURSELVES. i need a -5 on this one. as johnny storm would say "FLAME ON!"

Economy 101 for startup companies (2, Informative)

dybdahl (80720) | more than 9 years ago | (#12146103)

Renting is more expensive than leasing because you can halt the contract with short notice.

Buying means spending more money to start with.

Borrowing money to buy instead of leasing would be the obvious choice IF the lender knows that you will succeed. If there is doubt about whether you will succeed with your new company, it will be very expensive to borrow the money to buy the stuff, and then leasing is cheaper.

That's it.

Lars Dybdahl.

Public markets (0)

Anonymous Coward | more than 9 years ago | (#12146107)

For a Fortune 100 company, the biggest reason to do anything is the public markets. How things look on an annual/quarterly/daily basis is important, because the secondary markets (stock markets) will judge your company based upon how THEIR customers judge them. So if it's quarterly numbers, then any procedure that helps those quarterlies look "better" will be adopted.

Investors HATE RISK. They hate not knowing what's going to happen in the future, so any steps that a company uses to reduce risk is rewarded. Any steps taken to off-load that risk onto someone else is considered good management. Leasing equipment is a way to off set the risk of obsolescence, critical security hole, exploding hard drives, etc. to someone else.

Leasing equipment means having an "operational" expense, that hits the books on a predictable basis. While the dollar costs might be more than outright purchasing, when you consider the premium associated with purchasing, leasing makes more sense. Again those premiums include: time value of money, software/hardware, upgrades, etc. Being able to say "computer operation costs are X for the next 5 years" means a lot when you're planning the budgets. Not knowing if you'll need to take down all your workstations, because the OS changed. Or if all or 386 chipsets become too old. These are things that cause surprises, and the markets never reward surprises.

I doubt the person wants to know in order to make a decision, more to understand why the business is leasing machines. I would suggest he takes the time to clean up his resume. More and more businesses are outsourcing EVERYTHING, including the IT maintenance role.

Business questions on Slashdot? (0)

Anonymous Coward | more than 9 years ago | (#12146109)

Leasing, as a business decision, is a little more complicated than hot grits and beowulf clusters. The basic Total Cost of Ownership/timing questions that you seem to be focused on are only a portion of the reasons that drive most people to Leasing, and they're usually the smallest pieces. Usually, it's more a question of tax liability and risk. These are both topics that I could go on at length about, but I'd probably be mostly wrong, since I'm not a tax accountant.

The one thing I'll point out is that while you're bearing IBM's profit margin in your costs, you're at least seeing those costs, and you can articulate them to your management. If the costs were all baked into your baseline funding, then it would be harder to tell your management what the reduction in service is if they cut your budget. The ability to blame the vendor is an important factor in most business decisions, and shouldn't be ignored.

Lease if you can Bill for it. (1)

DumbSwede (521261) | more than 9 years ago | (#12146112)

Leasing may work on paper for our company because we bill it to our clients as part of our services. But from an efficiency standpoint it sucks. We tend to run on cutting edge equipment leased at obscene rates, equipment that still costs an arm and a leg to purchase when the lease is up (mostly Sun and SGI). Then you have to migrate stuff (which seems to happen every time you turn around), change disks, scripts etc...

If you aren't billing clients for the cost, I would recommend going with less bleeding edge equipment which can be purchased outright. Bleeding edge stuff tends to get leased because it's so expensive, and because those who get the stuff expect to stay leading edge by leasing newer stuff in a year or two.

BUT if you buy outright, always have a trickle of new equipment coming in that replaces the really old ratty stuff, else you end up with too much dependence on legacy equipment, which can be an even worse trap.

Bottom line -- only lease if you can bill someone directly for it. This often is the case because clients often won't pay to use equipment you own.

Don't do it... (1)

The-Bus (138060) | more than 9 years ago | (#12146116)

This is not something you should be doing, especially if it is for more than just your site. I would recommend speaking with a procurement firm* which may help you in analyzing the costs you have. The number of variables going into this is going to be so large that you probably may know a couple (or a dozen) but miss out on a lot more.

The easy answer: do {leasing, buy your own} if you can afford it, as it reduces a lot of headaches as long as your {service provider, in house staff} is dependable.

* Such as ICG Commerce [icgcommerce.com] . Disclaimer: A friend works for them.

Leasing is just another business channel (0)

Anonymous Coward | more than 9 years ago | (#12146125)

Most companies that do lease old equipment already have most of their income coming from selling these products. Leasing hardware is just another channel for their income.

It depends (1)

Inigo Montoya (31674) | more than 9 years ago | (#12146138)

Bear in mind that I am not in IT, I am a software developer, and I have never leased equipment. So take my advice with a grain of salt. Having said that, I honestly think there is no cut and dried answer to your question.

To lease or not to lease really depends on your situation. I know, that sounds like a lame cop-out, but it's true. In your case, your company has come to see the dark side of leasing, namely high costs associated with the return of the equipment, especially if it has anything beyond normal "wear and tear", whatever that really means.

However, if I ever decide to become an independant software developer, I might seriously consider leasing several pieces of equipment needed to do my job, since I would not have a huge capital outlay up front, I can manage the monthly expenses, and plan for the payments as they come due, even so far as making some of those lease payments with the income stream from my product(s).

So in that situation, leasing would be very beneficial to my cash flow, without seriously damaging my operating capital, which I would need for a long time during my startup phase.

Talk to the accountants and lawyers (5, Insightful)

anomaly (15035) | more than 9 years ago | (#12146148)

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

No. It isn't worth it (1)

Moderation abuser (184013) | more than 9 years ago | (#12146166)

Leasing assumes you can't find a use for obsolete kit. Plus it's a right royal pain in the arse to administer.

Well, if you design your systems correctly your kit will still be in use long after it has depreciated.

That means *don't* put the power on the desktop where it will be obsolete in 18 months. It also means make use of *all* of your computing power. It isn't difficult, there's loads of (free) software out there to help. e.g. http://gridengine.sunsource.net/ [sunsource.net] . Oh oh oh. Look! It has that "Grid" buzzword! Don't worry it's just a load balancing network queue system, been around for decades.

You can save a *bundle* by designing your network of servers & services properly.

it's worth it... (1)

Fooknut (73366) | more than 9 years ago | (#12146170)

where I work, we buy the screens. They don't go obsolete nearly as fast and cost a lot to ship.

The PCs are a different story, we lease those and we lease the servers. Comparing a purchase to a lease isn't really fair. Leasing a PC costs a little more but you have other benefits like upgrade costs and tax benefits to more than offset the costs.

Companies have legions of accountants to find out what is more profit friendly... leasing works for some and not for others based on a lot of variables.

buy out at the end of lease (1)

N3Z (746334) | more than 9 years ago | (#12146171)

My experience has been that most items are bought out at the end of the lease, so you should figure that price in for the end of lease.

Also, some leasing agencies do not break out individual items for buy out. It's an all or nothing deal.

An expensive leasing story from 1988 (1, Informative)

Anonymous Coward | more than 9 years ago | (#12146173)

Hi - in mid-1988 I worked for a large software company near Torrance, California that was close to releasing a new version of their flagship product. Early on, someone had estimated that the final testing cycle for that new version would be about three months, so they decided to lease (not buy) a wide range of computer equipment for maybe 50 to 100 temporary employees brought in for the final product testing. Well, the testing and final debugging actually ended up taking about 15 months (instead of three) and the net result was that the company ended up spending about three times on leasing that equipment than had they purchased it all and simply put it into a dumpster at the end. As I recall they were paying almost $100 a month for each dot matrix printer, and maybe $300 a month per laser printer. And yes, the company went out of business (actually was acquired) not long after this fiasco.

TWR

Leasing sucks: Let the Bean Counters sort it out (4, Informative)

Ma$$acre (537893) | more than 9 years ago | (#12146174)

My company traditionally purchased their own equipment, but at one point was offered a "killer" deal. We were a major software company which was recently taken over (ahem). The leasing deal looked great on paper (i.e. the Bean Counters LOVED it). In practice, it sucked wind. Not the pleasant kind I find blowing by my window as I type this, but rather more of the offensive sewage variety. It created a maintenance nightmare, added overhead that required more staffing to deal with returns, getting off-lease equipment returned from people in the field, which required new leased equipment, a rebuild, transfer of files, etc. despite the fact that the machines were plenty good enough to handle the current software load for another year. By the time the dust settled, my department vowed never to lease anything so transient as user desktops/laptops. Some large cost items which made sense and didn't require extra staff, tracking, and hidden work requirements were left on-lease. All-in-all, the CPAs can figure out how to get you some bang for the buck either way via depreciation, tax breaks, and what not. Don't be sold on leasing because someone tells you it's a better deal financially. When we ran the numbers after all was said and done, it ended up costing us much more in PeoplePower and requirements to make it all work - and even then it still sucked. Own your own. Accept no substitute.

Hell yes! (1)

first.last (751698) | more than 9 years ago | (#12146176)

We have some Xerox plotters that are constantly down, thus slowing down production since they all seem to go down together. If we had bought them instead of leasing our maintenance expenses would be through the roof. We shall be switching companies after the contract expires.

My $.02 (1)

n0tWorthy (796556) | more than 9 years ago | (#12146188)

In my experience, where I have had responsibility for several hundred servers, is that leasing is better. My reasons (in no particular order) are:

- You aren't stuck with old hardware on the floor. (Kit for you limies)

- You can PLAN you lease replacement and hardware ordering months in advance.

- The cost is the same as buying for a three year server lease. After three years no one wants that old (slow) pentium any more and recycling it into a lab gives you an apples to oranges test environment compared to production.

- After 3 years you are approaching MTBF for server components and the cost savings of avoiding downtime could probably buy your server multiple times over.

- You can plan your staff's projects and time accordingly. I can't over emphasize how much of an advantage being able to plan into the future is. :)

- You can touch base with your customers (in advance) to see what their plans for the application(s) hosted on this server are. It gives you an excuse to meet with your customers and discuss their direction. This can be good PR and shows that you want to add value to their organization's product/deliverables. You aren't dictating to them, you are working to provide a good value to the customer, etc., blah, blah...

- You always get MORE POWER from new hardware and usually for a lower cost. - If older applications don't need the power of new hardware or are being phased out then moving them to VMWARE virtual machines may be a good idea (which can lower your costs).

I'm sure I will think of some more in a few minutes but that is what I can get in 5 minutes.

in my experience... (1)

TrippTDF (513419) | more than 9 years ago | (#12146194)

I worked at a small company that ran on Macs. Whenever we needed a new one, we would add it to this lease. We only had about 15 machines purchased over the course of about 4 years. Nothing top of the line, but adaquate for Photoshop and Illustrator.

When I left, the leasing payments were nearly $1,500 a month, which works out to almost the cost of a new machine.

Cashflow and nice looking books (2, Informative)

daBass (56811) | more than 9 years ago | (#12146205)

The only reason (especialy listed) companies like this is for cashflow and not having it on the books.

In one year you can choose to spend, say, 1M on IT. Or you can spend 250K leasing it every year. That leaves 750K looking good on the books and can be used to invest in other money making opportunities.

Tuesday (0)

Anonymous Coward | more than 9 years ago | (#12146231)

7

Does that answer your question? I didn't think so. Try asking a reasonable question next time.

Answers (1)

utexaspunk (527541) | more than 9 years ago | (#12146232)

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?

Maybe. Maybe. Maybe. Maybe.

Consider the useful life of the equipment (1)

Kurt Gray (935) | more than 9 years ago | (#12146245)

From my experience companies use the same IT equipment with minimal upgrades for x amount of years before tossing them in the boneyard:

Workstations: 3 years
Monitors: 4 years
Laptops: 2 years
Printers: 4 years
Servers: 4 years
Phone system: 4 years ...so for example if a phone system is going to cost $60k to buy or $20k to lease for 4 years well then consider leasing.
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