We probably couldn’t come up with the exact number but wouldn’t you agree it’s safe to say that Billions of dollars are spent annually on IT (that’s information technology by the way!) and technology financing. Can you really save thousands, or those millions?! by smart acquisition strategies . We’re sure you can and we will show you how.
The acquisition of computer, it, and other technology assets is without a doubt one of the largest Capex spends any medium or large sized business makes. Your make those investments because you are optimistic about the future of your firm, coupled by the need to stay ahead of the competition in the ever changing technology curve.
If your are the owner, chief financial officer, or chief information officer of any firm you want to know what your alternatives are in the areas of IT and Technology finance. Those alternatives comes with different costs, different outcomes, and different risks, all of which make it often a daunting decision when you are at the proverbial fork in the road .
The author of this article spent over 20 years in technology financing and saw trends come and go. The largest trend by far, we think, was the desire of firms to go off balance sheet when acquiring computer, technology and telecom assets. That probably is still a good decision today for many reasons – the main ones being lower monthly payments due to the residual taken by the lessors, the ability to invoke your three rights at the end of the term of the lease, as well as the constant availability of upgrading during the term.
Having said all that there are of course some new international accounting rules that will bring those off balance sheet liabilities back onto the balance sheet. Is that a good thing? We won’t weigh in on that one today… it’s probably good for lenders to your firm as all that debt is now front and center on the balance sheet. Anyway, that’s a discussion for another day.
So how are smart decisions made in technology financing – whether its computers, phone systems, software (yes software can be financed!) etc.
It all comes down to a couple key areas – first of all, if you aren’t proficient in lease calcs work with an expert who will help you assume residuals, interest rates, and proper economic life cycles . If you could afford it (some can’t… some can) the smartest thing to do would be to finance technology and IT on a 2 year FMV lease. That way the residual value established by the lessors would be high, you would be able to flip into new technology in 24 months.
Let’s use a 2 million dollar major technology finance acquisition as an example – Using smart financing via an FMV lease a monthly payment on our 24 month term would be approx 71k per month.
Your firm would be the beneficiary of a 400,000 residual investment by the part on the other side of the lease. Your monthly payments to acquire 2 million dollars of technology for 24 months would be only 1.7 Million dollars. If you chose the lease to own route or loan on your technology financing your payments on a typical 36 month transaction would be over 2.2 Million dollars, almost 400k more than in our ‘ smart finance ‘ scenario.
So, what’s smart IT and technology financing all about? Its knowing the use of your equipment, its expected useful life, how lessors can play the interest and residual game and how some very basic expert information can put you back into the driving seat on those thousands (or millions) that Canada spends on IT finance for technology .Speak to a trusted, credible, and experienced expert to assist you in your benefit recapture in this critical area of business.