We’ve all been there. Despite your best efforts at planning and using resources carefully, your IT budget is blown long before year-end. It can be difficult to predict catastrophic events and even more challenging to accurately predict how much solutions will cost.
Kelser’s managed IT support can make your costs predictable and manageable. Having said that, we know that managed IT support isn’t the right solution for everyone.
So, if your budget is already spent, what are your options?
As Kelser’s vice president of finance, I work with customers just like you every day. While there are a bunch of options, there are a couple of solutions we’ve seen work well in situations just like this.
In this article, I’ll explain how leasing and financing can help organizations in your predicament. After reading this article, you’ll understand everything you need to know about the options available to you so that you can make the best decisions for your organization.
What Options Exist When Your Budget Is Spent?
Obviously, the ideal solution is to budget accurately so you can avoid this situation in the first place. But, enough Monday morning quarterbacking.
While there are a plethora of options, in general, there are two options that we’ve found to provide a solid lifeline when companies are in this situation: financing and leasing.
(These options may not be a good fit for organizations that rely on grants and donations where funds need to be used all at once.)
Both options provide the advantage of having the money you need immediately without incurring a large one-time payment upfront.
The only caveat is that you should keep in mind the expected lifetime of the IT assets you are buying; you don’t want to spread payments over 10 years if the assets will need to be replaced in three years.
1. Financing
Similar to consumer financing (or loans), IT financing involves paying for a product or service over time.
It usually means taking out a loan from a bank or another financial institution (although some large IT service providers may offer financing options). You pay back the money borrowed plus fees and interest over time.
What Are The Advantages Of Financing?
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- You can buy what you need now.
- Predictable monthly fee vs. a large one-time upfront cost.
- You own the product at the end of the financing agreement.
- Financing helps maintain better cash flow.
- Some financing agreements offer deferred payments (i.e. you can access the money immediately, but you don’t need to begin payments for a certain number of months)
- It’s not complicated; your IT provider can often put you in touch with a vendor financing organization saving you the time and hassle of shopping around.
- Financing charges are booked as an operating expense.
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What Are The Disadvantages Of Financing?
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- You may need to find your source of financing.
- You will need to negotiate your terms.
- You end up paying more because you pay fees and interest on top of the original amount borrowed.
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What Can You Finance?
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- Services
- Hardware
- Software
- Infrastructure
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2. Leasing
Leasing IT equipment can be similar to leasing a vehicle.
Some IT providers may offer leasing arrangements directly, but other providers will arrange for you to finance your purchase directly with a vendor they already work with. The vendor conducts a credit check on your organization and assumes all of the risk associated with the agreement.
Leasing often offers more options, including whether you own the equipment at the end of the agreement, or if the leasing company owns it. Some financing providers even offer to wipe and recycle (or resell) the equipment at the end of the leasing period (for a fee).
Different partners have different options. Make sure you know what yours includes.
You’ll also want to check how your leasing agreement will hit your balance sheet, based on recent changes to accounting standards.
(Always ensure, whether you pay someone else or do it yourself, that all leased equipment is wiped upon termination of the leasing agreement.)
As we mentioned previously, bear in mind how quickly technology changes when negotiating the terms of your lease. You don’t want to spread the costs over 10 years or lease to own at the end of three years, when your technology will be obsolete shortly after the lease period ends.
What Are The Advantages Of Leasing?
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- You can buy what you need now.
- There is typically no penalty for early payoff.
- It’s not complicated; your IT provider can often put you in touch with a vendor financing organization saving you the time and hassle of shopping around.
- Leasing helps maintain better cash flow.
- Some financing agreements offer deferred payments (i.e. you can access the money immediately, but you don’t need to begin payments for a certain number of months).
- As long as you don’t plan to own the equipment at the end of the lease, leasing charges are booked as an operating expense.
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What Are The Disadvantages Of Leasing?
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- You end up paying back the initial amount plus interest.
- If you don’t end up owning the equipment, you’ll need to pay an additional fee for the leaser or an outside organization to wipe and dispose of the equipment (or do it yourself).
- You may need to find your source of financing.
- You’ll need to negotiate your terms.
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What Can You Lease?
Typically, leasing is a good option for all IT expenses except monthly recurring costs. That means that it can cover:
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- One-time professional or project service costs
- Hardware
- Software
- Infrastructure expenses
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How Can You Avoid Budget Shortfalls In The Years To Come?
After reading this article, you know the similarities and differences, advantages and disadvantages of both financing and leasing for IT expenses.
We all know that budgeting is not an exact science and sometimes you need creative budget solutions to keep your IT infrastructure safe, available, and efficient.
At Kelser, we know that managed IT support is not the right solution for every organization, but it is one of the most effective ways of developing a predictable IT budget that guarantees the full care and feeding your IT infrastructure needs and deserves.
You pay one monthly fee and a managed IT support provider proactively manages all or part of your IT environment so that things run smoothly, security issues are mitigated, and your business achieves its strategic goals without hiccups.
While project work may incur an additional fee, many managed IT support providers include the services of a Virtual Chief Information Officer (vCIO) at no extra cost. This IT professional works with your team to plan, prioritize, and budget for the technology your business needs, minimizing (or eliminating) surprises.
Want to know more about managed IT support? Learn what It Is, what's Included, and how much it costs.
Wondering how managed IT is different from the traditional service model? This article compares the cost, reliability, security, and productivity impacts of both options.
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