Simple Tips on Cash Flow Management for Tech Spending
Today’s Small and Medium Businesses (SMBs) have more options than ever before when it comes to managing their budgets. Technology is the heartbeat of most SMBs, and no longer is it an uphill battle to stay within budget while expanding or modernizing the infrastructure. Being wise about how you approach your IT spending is one of the simplest ways to learn how to manage cash flow in a business that’s growing.
As the Journal of accountancy explains, “Good IT budgeting is like good financial planning.” They advise you to consider both short and long term goals when approaching IT spending, to assure “the organization is aligning its IT strategy with its business strategy, resulting in the right IT investment decisions.”
A well-rounded cash flow management plan, as it relates to IT spending, should also include factors like spend versus return, maintenance and upkeep, modernization benefits and productivity enhancement. We’ll take a look at how these factors can all combine to create an ideal scenario that protects your bottom line and enables your business to better manage cash flow.
IT spending statistics you need to know
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 the smallest 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 end-point 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 [Internet of Things] 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 [the] 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. Technology 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.
IT leasing vs. purchasing
Tech spending best practices do not always dictate that you should purchase the equipment you need outright, especially if cash flow management is a concern. In many cases, good cash flow management strategies include IT leasing, as opposed to purchasing. There are a number of good reasons to consider a lease over a purchase.
- 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 your company would have access to the most modern equipment every one to three years, without having to reinvest in new technology.
- 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.
- Minimal upfront costs: Leasing IT equipment is often seen as one of the more advantageous cash flow management tools 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 risks associated with leasing this equipment, too. The obvious two include: Spending more money on equipment over time but paying a set monthly price; and being locked into a lease that requires that you continue to pay even if you stop using the equipment.
Buying the equipment that you need outright is not a bad idea, either, provided you have access to the resources you’ll need. However, it’s also important to take a look at the pros and cons in this scenario before you proceed.
- You’ll have more options than 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 equipment from your business taxes 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 infrastructure up-to-date.
Financing is always an option that enables some businesses to deduct the actual purchase cost, interest and fees, as well as depreciation from their taxes (this is not tax advice; always consult with a certified accountant before making any tax decisions).
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.
Modern technology saves you money
Updating 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 improve your bottom line.
- Adequate security and disaster recovery methods can safeguard your data and protect your business’s integrity.
- Modernized hardware and peripheral solutions can make your workforce more efficient and accountable.
Being strategic in your approach to technology spending will deliver the best end results, and can preserve vital cash flow along the way.
Take control of technology purchases and leases by partnering with Insight. Explore your maintenance, software and security options. Talk to an experienced specialist by calling: 1-800-INSIGHT.