One Size Does Not Fit All

Just because a technology solution works for one company, doesn't mean it's best for yours. The key is tailoring the tools to fit your needs.

for those who show initiative. The company plans to expand its program into New York City and Chicago within the next two years, while continuing its tenet of frugality. “We believe that our current success in this economy is due to our focus on our customers needs and our flexibility in working within our clients budgets,” Benton says.

THE BOTTOM LINE
Before upgrading your technology, it’s important to keep in mind that the equipment you purchase will likely become obsolete or have a poor market value before the end of its life. Sometimes equipment is needed for a short time, and capital resources often need to be preserved. If borrowing to purchase is necessary, beware of high interest rates that must be paid back. It is also important to remember that the tax benefits resulting from equipment ownership are not applicable when leasing.

It’s always a good idea to acquire only the necessary equipment. By nature, technological expenses represent long-term investments of capital. In most cases, recovering money spent acquiring tech equipment will span several years. So, unless you have unlimited financial resources, avoid tech purchases that will not bring a significant increase in profits, efficiency, or productivity.

For a major purchase, however, commit to performing a thorough cost-benefit analysis to determine whether operational costs will be fully recovered through expected increases in earnings or savings. Depending on your profit margin, a $1 savings in purchasing costs could have the same effect on your profitability as a $5 increase in sales. In other words, that $1 savings may give you an additional $1 to spend on promoting your business or developing your products and services.

A Note on Leasing
Obtaining equipment through leasing depends upon how extensive your needs are, as well as how much time and resources you can devote to the procurement process. The more complex the distribution, the more advantageous it is to use an outside resource, such as a consultant or a value-added reseller (VAR), who offers advice and support in addition to selling products.

Banks and financial institutions often offer more flexible options than leasing companies. For example, if you know what type of equipment you need, you can negotiate a price directly with the vendor. The bank will then purchase the equipment and arrange the lease payments with you.

If you haven’t yet determined what type of equipment is required, you can obtain a pre-approved line of credit, allowing you the luxury of shopping for equipment. Most bank leases require that the equipment be purchased at the end of the lease for either a nominal fee or at market value. Insurance and maintenance obligations generally fall to the person leasing the equipment.

Leases typically fall under three categories:

  • Small ticket leasing: Equipment with an original purchase price of no more than $100,000.
  • Middle market leasing: Equipment valued at $100,000 to $2 million.
  • Large ticket leasing: Equipment value exceeding $2 million.
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