The line of lease resistance

The line of lease resistance

A balanced approach to IT equipment financing


by
Mark Wood
CTO, Excotek

A new view on new horizons
What a time for business planning we’re all living through right now! As well as difficulties for many companies in adjusting to operating remotely, restrictedly, or not at all, it’s also virtually impossible to plan for future business. We simply don’t know what’s coming down the tracks, or when. It is a new reality for the economy, and a new mind-set for businesses, in every aspect of their operations, and their finances.

One thing all businesses can plan for now is that returning to normal will be a long journey. It will be like the whole world recovering from a massive operation. As we recuperate, we will only gradually regain the use of our limbs. The economy will not go from stasis to overdrive; a lot of stretching exercises will be necessary before that happens. New horizons lie ahead of all of us. A new view is essential.

 

In a world of risk, the low-risk route is king
In my last blog, I shared some ideas on the value of refurbishment for reducing the financial hit to IT budgets. It’s an option that might be entirely appropriate for your operations if you have a long-established IT environment and are looking for additional capacity to augment what’s already in place. It’s a rock solid ‘business-as-usual’ option. If older generation servers suffice for the task, then going refurbished enables you to drop them right into your existing infrastructure. They will do the job. They will also do the job at a fraction of the cost of acquiring new equipment.

Sometimes, however, there are tasks for which marginally-aged equipment doesn’t fit the bill. It’s not about the ability of the equipment to function smoothly (which refurbished kit will), it’s about how it was specified and configured in the first place. Its actual purpose may not be fit for your requirements. This would primarily apply to newer environments where, for example, the use of advanced graphics cards or accelerator cards is critical to your mission; where AI or machine learning, for example, are core capabilities for which there’s no substitute for the latest and greatest servers on the market.

 

In innovation-focussed environments, an alternative mode of financing comes into its own, helping you solve the problem of deploying state-of-the art equipment against a backdrop of uncertain business outcomes.

The main concern is that making sizeable investments – without the assurance of robustly calculated pay-back – could be considered as simply adding risk in an already risk-intense economy.

 

Optimise your finance strategy
Shifting expenditure from CAPEX to OPEX has the immediate benefit of avoiding significant financial outlay. This is important because all businesses are seeking to hold on to cash at a time when it’s not being that sustainably generated. Prudence, however, shouldn’t forestall preparedness for change or responsiveness to suddenly emerging demand spikes. Neither should it lead to discontinuing digital initiatives.

It could be said that in a time of lighter customer demand, energies should be transferred to some of the longer-term projects that you’ve never really had the time to get off the ground. There is consideration, therefore, around maintaining operations – or at least operational efficiencies – in the present, while planning technology investments for the, as yet, unforeseeable future.

Businesses can consider applying a different mode of financing equipment purchases to each need. This can create the optimum financing mix, keeping both the finance side and the operational/customer-facing side of the business happy.

 

Agile financing and procurement
There are no hard and fast rules in today’s rapidly mutating world. Flexibility is all-important. An effective finance strategy in current times is multi-pronged; a mix of three approaches. When each is applied to an equipment sourcing requirement in accordance with its urgency, purpose, and integrability, you’ll be better equipped to stretch the budget and keep operations on track for both immediate needs and longer-term aspirations:

  • Outright purchase of new equipment: Absorbing the CAPEX as a conduit to ownership, state-of-art, and the associated benefits of warranties/vendor support/expected life.

  • Renting: Ideal for short-term coverage, for three to around six months, such as may be quickly required should demand spikes occur; the need to ‘fill the void’ particularly for spikes which represent unusual customer behaviour as areas of the economy revitalise. Such behaviours are likely to relax to normal levels after the initial excitement wanes.

  • Leasing: Leasing is a longer-term financing option that enables you to write-off the costs in the year of acquisition, rather than a longer period. The economy won’t bounce back. Recovery will be protracted. Leasing is about more than spreading the financial burden; it’s also about spreading the risk, associating your outgoings with a more realistic expectation of being able to comfortably afford them.

Both the leasing and renting options can apply to either refurbished or new equipment. I suggest that the most important notion to take from this is that you have choices. We’re in a period where we’re all learning new lessons, and it’s best to assume that budgets will be challenged for a long time to come; possibly years. It’s time to think about how leasing IT equipment could bring more to your operations, give you more flexibility, and enable you to keep as much cash as you can well locked-down.

Once you’re resolved how to finance your IT requirements you’ll run into the next challenge; how to source the physical equipment in the shortest time possible. If you need any help with that, just get in touch: [email protected].

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