It's becoming increasingly common for businesses today, especially small and growing operations, to lease their telephony equipment rather than investing in it directly. There are several clear reasons for this:
It requires far less up-front investment, often with no down payment required.
Rather than large investments, your equipment is amortized into predictable recurring monthly payments instead.
The IRS offers significant tax breaks for leasing. In some cases, the deductions can actually counterbalance the entire cost of leasing.
You receive technical support through the leaser, giving you more options in obtaining help when it's needed.
Insurance and other secondary costs of investment are usually far lower.
The equipment can usually be traded in at any time for upgrades, as needed.
However, if you lease your telephone or networking equipment, there's a big decision to be made at the end of the lease: Whether or not to keep the hardware, or trade it in for something better.
Let's look at the options here a little more deeply:
First of all, of course, if for some reason the lease is not fully paid by the time it's supposed to be, the leasing company will virtually always extend the lease until the equipment has been paid for.
If you're current on your payments, though, it boils down to whether you want to keep the equipment you've been leasing.
Reasons for keeping the hardware:
1 – You paid for it, so you should keep it.
At the end of the lease period, you've paid for the cost of the hardware. If you hold onto your telephony equipment, that money paid translates into a capital investment with tangible goods provided.
2 – The equipment can be re-purposed.
If your business is growing, you probably have need for increasing amounts of equipment. Even if leased hardware is no longer top-of-the-line once you finish paying for it, you can virtually always continue to use it for more years in secondary or tertiary roles.
3 – Avoid inconveniencing your workforce.
As the saying goes, “If it ain't broke, don't fix it.” If you have systems in place that are working fine, which your employees are comfortable with, consider leaving things alone until you have a reason to buy new kit. Upgrading solely for the sake of upgrades just slows everyone down, introduces network downtime, and forces your workers to learn new systems.
Reasons for upgrading at the end of your lease:
1 – Keeping on top of the upgrade game.
It's an unfortunate truth that telephony and networking in the 21st Century requires a never-ending cycle of upgrades. By the time a piece of equipment is about five years old, it's at least significantly depreciated. It may even be outright outdated.
By trading your hardware in, you can ensure you're staying ahead of the upgrade wave.
2 – The consistency of ongoing payments.
Depending on your financial situation, it may make sense to just budget your hardware as though it were a “service” and simply continue folding it into your monthly operating expenses. That virtually eliminates the unpredictable up-and-down spending that hardware investments demand.
3 – Tax benefits.
Broadly speaking, the tax benefits to leasing will usually outweigh the tax benefits of owning rapidly-depreciating equipment that may, itself, have to be written off a couple years later. However, this again is going to be specific to your situation; talk to your accountant.
Do You Renew That Lease?
This isn't a simple yes\no question, and it depends on both your current financial situation, as well as your plans for the future of your business. There are significant advantages and disadvantages to all your options.
To discuss phone system leases in more depth, or to talk about how easily leasing can get you the telecommunications upgrades you need, just contact us for all the information you want!