As the Journal of Accountancy explains, “Good IT budgeting is like good financial planning.” They advise that you consider both short and long term goals when approaching IT spending, to assure that “the organization is aligning its IT strategy with its business strategy, resulting in the right IT investment decisions.”
A well-rounded cash flow business IT spending plan should also consider factors that include return on investment of resources, maintenance and upkeep, modernization benefits and revenue driven by productivity enhancements. Whether you’re in the IT procurement process for a retail company, or you’re managing healthcare IT spending, we’ll take a look at how these factors can increase your bottom line and better enable cash flow forecasting.
As shown in Figure 1, think tank Tech Aisle has projected that IT spending for 2016 will hover around $188 billion for the U.S. Notably, 52% of SMBs are reporting “that technology helps drive the direction of their business.” Of importance is the report’s finding that smaller businesses (those with less than 50 employees) are seeking to decrease their tech spending by 2% to 6% this year. Meanwhile, midsized businesses are increasing their tech spending.
“This is primarily because of less spending on endpoint devices and IT services. Especially within the micro-businesses, spending on mobility is likely to fall by as much as 10%. Survey data shows that IT spending by small businesses is shifting to cloud, managed services, analytics and even IoT as indicated by planned budget increases in each of these technology categories,” the Tech Aisle report reads. “Only the 1-4 employee size businesses are planning to keep their 2016 cloud budget same as in 2015 as these businesses are reaching a theoretical limit of paid cloud usage.”
However, the report also notes that businesses with between 49-249 employees are increasing spending. IT spending and cash flow management are intertwined, with many businesses considering financing or leasing their purchases to meet their cash flow needs. This betters explains why 59% of midmarket entities are pursuing financing to free up cash flow.
Tech spending doesn’t always mean that you should purchase the equipment that you need outright, especially if cash flow forecasting is a concern. In many cases, a good strategy to manage cash flow includes IT leasing, as opposed to purchasing. This makes the procurement process easier, allowing businesses to utilize an Operational Expense (OpEx) model rather than obtain Capital Expenses (CapEx). Obtaining IT procurement approval from the department’s manager is a lot easier for the end user than asking the Chief Financial Officer (CFO) for a large investment on new technology.
Modern equipment: When leasing versus purchasing technology equipment, you will be able to use the latest and greatest devices. Many leases span between 12 and 36 months. This means that your company would have access to the most modern equipment every one to three years, without having to reinvest in new technology and simplifying IT procurement.
Forecasted expenses: A leasing structure works on a revolving and set payment plan. Unless you change the plan by adding or removing the equipment you are leasing, your monthly payments will remain the same, and will become a predictable part of your bottom line, in addition to easing the procurement process.
Minimal upfront costs: Leasing equipment is often seen as one of the more advantageous IT procurement strategies because you typically are required to put little to no money down at time of the lease’s origination.
It’s important to be mindful of the cons of leasing this equipment, too. The obvious two include increased total cost of ownership, and the possibility of getting locked into a lease that requires that you to pay even if you stop using the product or solution.
Buying the equipment you need outright is not a bad idea, provided you have access to the capital investment you’ll need, and it’s a future-ready technology system.
You’ll have more options on technology products and solutions than with leasing, but you will also pay the full price on any purchases that you make, unless you finance them.
You will be in full control of the maintenance on the computers, but you may have to contract a Managed Services Provider (MSP) to assist with integration, deployment and upkeep.
You can deduct most of the cost of your equipment per Section 179 of the IRS code.
The cost may be too much: For some businesses, the cash flow required may be too steep for them to cover, making leasing or financing the only realistic options.
Ultimately, the equipment will age, requiring that you reinvest at some point to keep your technology modern.
Financing is always an option that can enable some businesses to deduct the actual purchase cost, interest and fees as well as depreciation from their taxes (always consult with a certified accountant for any tax advice; this is not tax advice).
However, as the hardware ages, the amount of money tendered in interest and fees can outweigh what could be otherwise spent on a comparable offering with a lease; where the terms are shorter and the associated fees are generally less. For these reasons, financing is an option, but it may not be the most advantageous route to take.
Modernizing your technology solutions will ultimately save you money while improving productivity.
Services like Voice Over Internet Protocol (VOIP) can eradicate costly phone bills and deliver unlimited long distance calling for your back office team.
Cloud-based solutions and Software as a Service (SaaS) can reduce costly software licensing fees and help boost employee productivity.
Adequate security and disaster recovery methods can safeguard your valuable data and protect your business from a costly security breach.
Modern hardware and peripheral solutions can make your workforce more efficient and accountable.
Being diligent with your approach to technology spending will deliver the best end results, and can also serve to preserve vital cash flow along the way.
Take control of technology purchases and leases by partnering with Insight. Explore your options with leasing and purchasing the equipment that you need today, including learning about maintenance, software and security options. Talk to an experienced specialist by calling 1-800-INSIGHT.