For most businesses one of the biggest outgoings is IT equipment and software. So, what is the best way to buy IT solutions? Should you finance IT solutions or pay cash?
From physical hardware like computers, laptops, and servers, to software licences, labour costs and networking. All of this has a cost so working out the most effective way of paying for it is an important decision.
Even if something is particularly expensive, there is usually a way to go about it. The main consideration should always be how is this thing going to help grow and augment the business?
In this post we look at a couple of ways you can buy IT solutions and why we think finance is the way forward for this aspect of business.
The most common ways of paying for IT
Of course, the two main options for buying equipment and the like are cash payments or financing.
Paying with cash, means having the cash in the business to make the payment up front or in limited instalments. A finance plan allows you to spread the cost over a much longer period, paying it back with interest added.
Here’s some pros and cons to both, although we’ll explain which one we prefer later.
Paying for IT with Cash
Many businesses want to stick to paying cash and are sceptical about using finance. This is understandable and usually based on healthy money management habits. Some take the view that paying for something outright is always better than using finance, which ends up costing more over the long term and ties you into a contract.
If the business is cash rich and can afford to pay for assets outright, it may make sense to do that. But for IT this isn’t always true. Much of this technology depreciates in value so the money you’ve invested in this equipment is money you’re unlikely to get back.
The other downside to paying with cash is that it wipes out cash reserves in one go, thereby reducing your financial flexibility and leaving you vulnerable if you go through a rocky patch in the business.
Leasing IT Equipment and Services
It’s obviously important to be careful how many outgoings you have and for some businesses taking on a debt (perhaps adding to many existing debts) is just not the sensible thing to do.
Consumer attitudes towards interest can also sometimes be cagey. However, for businesses it can be a bit different. There are some tax benefits that you don’t get as a consumer.
Ultimately, the main reason people choose finance is for the flexibility that it affords them. This is a huge bonus to your cash flow. Cash, as they say, is king and it really can make or break a business. Finding ways to protect your cash flow is never a bad idea.
The Benefits of Financing IT Solutions
As you may have guessed, we’re fans of finance. Here’s why.
One of the biggest benefits relates to how IT solutions are quickly depreciating assets. This means as soon as you’ve bought them the value of that asset begins to diminish.
It’s especially true for IT because systems are always updating and as hardware improves, older kit becomes obsolete. By buying your solutions with cash, you are investing a lot of money in something that is guaranteed to lose its value. The other potential issue with waiting until you have enough surplus cash to pay for this is that you are missing out on opportunities to generate revenue.
We’re not saying that IT solutions in and of themselves generate revenue, but they are likely to enable growth and sales. The benefit of buying with finance is that you get access to those solutions without investing a lot of money and the potential revenue you generate in that time can make up for or even surpass the depreciation occurring on your assets.
The other side of things is that although you will pay interest on your purchase, your ongoing costs will go down as an operational expense, therefore reducing your corporation tax bill at the end of the year.
There are also further tax relief schemes that you can take advantage of by paying on finance.
Should you finance IT solutions?
There are clear reasons why you should finance IT solutions. So how does an IT service provider like ours viably provide this?
Well, it’s all thanks to finance partners like ours at Synergi Finance.
When we send our customers a breakdown of what we’re doing for them, we’ll include itemised costs. Underneath this will be a breakdown of what that looks like on finance. It’ll show monthly or quarterly payments over a 3-5 year plan. What you choose depends on what works for you.
Our partners have a portal which allows them to do credit checks to ensure this option is achievable. They have access to a wide range of lenders that make the process smooth and seamless.
Alternative Financing Options for IT
This isn’t the only option for financing your kit though. It’s always worth looking at national and local government loans and in some cases, grants.
These can be vital to help support business growth. A lot were released by the government during and in the wake of the Covid-19 pandemic to help support affected businesses.
The recovery loan scheme for example has 70% backing from the government and is still available to some businesses. In the 2021 Autumn budget the scheme was extended until 30th June 2022.
Some lenders will use these schemes as way of providing asset financing that has lower repayments for an initial period. This way businesses have access to what they need but a little bit more breathing room to pay for it.
How Financing IT Equipment Helps Cash flow
Regardless of how you choose to pay for IT solutions, the key thing to remember is keeping the cash flowing and growing a profitable business.
IT is essential. There’s not much you can do without it. The question is what method of paying is going to leave you in the best position to grow as a business and generate revenue.
We think finance helps to do this best. We’re happy to discuss options and how this works with any of the solutions we offer. Get in touch.