Whether you are a small start-up business or a large corporation, technology, such as voice, video or data, use is inevitable and a necessity to staying competitive in the marketplace. So, how are you going to pay for the equipment you need; what are your options?
Each company has unique financial needs which are why it’s often beneficial to draft a good ole’ fashioned pros and cons cheat sheet to help you make an educated financial decision.
There are multiple ways that businesses can pay for their phone system, such as:
- Using capital or cash
- Tapping into their credit lines for a bank loan
- Capital expense (CAPEX), or $1 buyout
- Operating expense (OPEX), such as TAMCO Shield
If you are going back and forth between whether you should buy or finance your technology equipment, we’ve identified and mapped out a few of the main advantages and disadvantages to differentiate what financing vs. buying your phone system looks like.
There are a couple different types of technology payment options you may benefit from, capital expense and operating expense financing options.
Off-Balance Sheet Accounting
Depending on the terms or type of monthly payment option you choose, you may have certain financial reporting benefits available, such as off-balance sheet accounting. This is definitely a pro to financing since you can avoid accumulating additional depreciating assets.
Technology depreciates over time. Depending on your payment option, you can exchange or return your outdated tech equipment for newer equipment. With specific finance agreements, you can replace without any financial penalty.
When you finance your tech equipment, you generally acquire a manageable monthly payment rather than forking over a large lump sum of money up front. Instead, it allows you to preserve that money for other appreciating or revenue generating investment opportunities to grow your organization.
Bundling in Multi-Year Maintenance
Financing your tech equipment allows you to bundle in multi-year maintenance with your manageable monthly payments instead of paying that cost upfront. Plus, it guarantees that any unexpected issues that arise get addressed.
Might be More Expensive
Depending on the payment option you contract, it may be more expensive than a cash purchase.
Keep Paying for Equipment You Could Buy
If your intention is ownership and to hold onto the solution for the next 15 years, without any changes, financing may not be for you.
Often times people see a cash purchase as the best financial solution for them, and sometimes that may be the case; however, technology equipment depreciates over time, and becomes outdated rapidly. The following text establishes some of the pros and cons to a cash purchase of buying your tech equipment.
One & Done
If you make a cash purchase, essentially you simply choose your product and buy it. It can be that simple.
No Finance Charges
With an outright purchase you will avoid the additional expense of finance charges.
When you make a cash purchase you now own a depreciating asset which is essentially pouring your business capital down the drain.Cash Reserves Are Depleted
Buying your technology equipment will reduce your cash reserves which can end up hindering your business growth or your ability to address emergency capital needs.May Cost More than a Traditional Finance Option
If you decide you want to own the technology equipment, then a cash purchase may not always be your financially lowest cost solution.
Sometimes a $1 buyout lease can result in a lower total cost post the various tax, financial and accounting factors that are added into the equation.
Financing vs. Buying Your Phone System
Ultimately, whether you choose to finance or buy your phone system is up to you and which option is the best financial solution to suit your technology needs.
In order to make an educated financial decision, consider both the drawbacks and the benefits of cash purchases and financing options for your specific organization.
Cash may seem like the easiest option at the time, but financing technology equipment can help you preserve cash, protect your business credit lines, and improve your balance sheet ratios.
Just remember, you should not only consider what to buy, but how to buy when evaluating the various options, pros and cons for each solution.