UK: SME/Professional Counsel - Computer Systems - To buy or not to buy.

UK: SME/Professional Counsel - Computer Systems - To buy or not to buy. - Companies with aggressive growth should consider leasing.

by Rob Wirszycz.
Last Updated: 31 Aug 2010

Companies with aggressive growth should consider leasing.

As a business grows, owner/managers face two IT dilemmas. First, their current programs probably can't provide what they will want from their system in the future. So do they build a special system to meet their unique needs or buy in a package? Second, they probably haven't got the money now to pay for that system. So do they lease or buy?

Gone are the days when businesses had to build a special database for their unique needs because it was not available on the market. Today, there are plenty of commercially available software packages. The only trade-off may be the need to adapt working practices a little but this is minor compared to the extraordinary pain and torment businesses should probably go through if they decide to do it themselves.

The key to understanding whether to 'lease or buy' is to take into account more than just the initial installation costs. Businesses should factor in servicing costs, training expenses, upgrades and likely company growth.

For a fairly standard PC network, this so-called 'total cost of ownership' can be roughly calculated by allowing acquisition costs of around £2,000 per PC (£3,000 for laptops), £5,000 per PC server, £1,500 per printer (plus consumables) and recurring costs of £2,000 per year per user for network, maintenance and training costs. From experience, even if organisations depreciate their hardware over three years, the normal replacement cycle is two, so split the hardware acquisition cost in half.

Armed with this information, businesses can then compare the advantages of budgeting out of their own cash-flows or using a lease to spread the costs over a set period. A number of excellent leasing companies have very flexible lease schemes, which allow for periodic 'technology refresh' and system growth. The challenge is to compare like with like and for businesses to take a view on their likely growth profile. A mixed strategy may be best. Those with aggressive growth plans may prefer to lease their network infrastructure and buy their PCs on an as-needs basis allowing them earlier access to a sophisticated network.

Either way, having these dilemmas is good as it is a sign of increasing maturity in the development of a business's information infrastructure - a kind of 'coming of age'.

Rob Wirszycz is marketing and strategy director of EDS UK, 0181 535 3200.

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