This is a question that comes up very frequently, and the answer may differ relative to the needs of your business.

A lease/purchase decision is a key example of where IT, budgeting and finance intersect, and a sound decision has positive business implications beyond just Gigabytes and RAM.

The great news is that there is an immense amount of flexibility available today, and all of the options can yield different operating benefits for a company.  The key components to rank and prioritize for a sound commercial decision are:

·         Capital/Cash Preservation

·         Optimizing Cost of Capital

·         Expense Coverage/Depreciation

·         Tax Planning

·         Forward budgeting

Lease, finance or pay cash: How do you measure the cost?

Leases:

When thinking of leasing, the financing component is called the Internal Rate of Return, or IRR.  The IRR is a measure of the lessor’s return (say Dell Computer) for buying the raw material and putting the hardware together, taking payment over time, and then taking the asset back at the end of the lease.  In a basic sense the IRR approximates the Annual Percentage Yield (APY) that you would find on a bank note or a revolving line of credit.

Purchases:

Traditional financing options can range from a credit card purchase to a bank or finance company note or revolving line of credit.  As from above, the cost component is a function of the Annual Percentage Rate or Annual Percentage Yield.

A straight purchase with cash involves looking at the opportunity cost of utilizing the cash (i.e. what could the cash earn if left in a typical interest bearing account) AND what using the cash for a hardware purchase, as opposed to being used for continuing operations,  means to the business .

Some recent data*:

                Credit Cards:      10% to 21%

                Lease IRR:           12% to 16%

                Bank Lines:         6% to 10%

                Cash Cost**        1.75% to 4.5%

What makes the most sense?

In today’s environment a traditional finance or cash purchase often is the best choice for a small to mid-sized business, generally offering the best mix of finance/opportunity cost and potential tax benefits.

From a pure cost standpoint, credit cards seem to be the least attractive option because of the generally high interest rate they contain.

Historically leases have had a major benefit in the ability, in most cases, to expense the entire lease payment at the time payment is made, rather than depreciating the cost of the hardware over time, plus any finance interest expense.

In the last few years this advantage has been reduced significantly with the addition of IRS Section 179, which allows businesses to expense the entirety of a hardware purchase, up to certain limits, in the tax year the asset is acquired.  The upside is that this matches the cash outlay with the expense coverage immediately.  The potential downside is that the assets are not recognized on the balance sheet, thus potentially undervaluing the true book value of the company, and that if the hardware is ever sold there could be a taxable gain on the sale.

For a more comprehensive look at how IRS Section 179 could apply to your business click here: http://www.irs.gov/publications/p946/ch02.html.  Also, spend a couple of minutes with your business tax professional to validate the financial aspects for your situation.

By correctly analyzing the technical functionality required by new hardware AND the optimal financial component you can make a solid technical decision a great business decision as well.

mstryker@extreme-technologies.com

www.extreme-technologies.com

* - Analysis is based off of a limited examination of public information.  Actual rates are determined only by financial institutions and are subject to change.

** - Cash Cost is the interest that could be earned on cash balances and based off of a limited examination of public information.  Actual rates are determined only by financial institutions and are subject to change.

The material presented herein is for informational purposes only. No financial advice or recommendation of any kind is being made hereby.

For a business owner or executive, protecting the intellectual property of the business should be job 1! 

More than just being a history of the company, data – in the broad sense – represents the cumulative value of work product that the enterprise has amassed.  The potential risk of losing all or any part of that value through a storm, a mechanical breakdown, or even simple neglect are unnecessary dangers that can be easily eliminated.

Regardless of the size or scale of your business, protecting the electronic property is one of the surest ways to keeping the company productive, and to prepare for any scenario.

There are three main steps in a solid data protection plan:

1.       Identification – In any business there can be a multitude of places where employees, or the applications they use, may store critical business data.  Employees who use different machines or personal devices can unwittingly spread important company information just through working to complete their daily tasks.  Start a spreadsheet and find and list the locations of all company data by:

a.       Employee/Job Description – List the types of data worked with and created

b.      Device – List the machines where all of the data types are stored

2.       Centralization – Deploy a technical solution to facilitate the collection of all of the critical data in one place.  There are so many options in terms of scope, scale and functionality that nearly any business can deploy a cost effective solution.

3.       Policy and Management – Once critical data has been located and put in one place the next step is to make the ongoing protection, as the data changes and evolves, a part of the everyday operation of the business.  The key is to get enough policy in place to guide your employees in protecting the data they work with, while keeping people focused on the core of their jobs.  Some straight-line policy examples:

a.       Data storage – Have a central, access controlled device for all employees to place and work with their data.  This can be as simple as a common Network Attached Hard Drive.

b.      Data Backup – Have a formal time each week where active data is moved to a backup device.  Make sure all employees are aware of the backup time window.  Have a copy of the most recent backup stored offsite and readily accessible in case of emergency.

c.       Data Use – Decide which categories of data should be accessible by job description and employ a User Access, like Microsoft Active Directory, to manage use of company data.

d.      Data Audit – Once company data is centralized, looking for data where it is not supposed to be is relatively easy.  Use an audit as a staff training opportunity.

Protecting critical business data is really protecting the future of the business.  The great news is that help is always available.  Contact us and we can help!

www.extreme-technologies.com

          For those operating businesses in the Gulf Coast region, the prospect of another storm taking aim at the local area can result in excessive uncertainty and worry.  The “normal” fears and concerns surrounding storm preparation are compounded by fears for co-workers and thoughts of lost profits, lost productivity and missed opportunity.

          Here are ten tips for adding some technology and process armor to the business, and peace of mind to each day.

1.    Get Introduced to the Lingo – “CIP” and “BCP.”  Critical Infrastructure Protection and Business Continuity Planning are the broad industry disciplines for protecting business operations.  Just knowing the vocabulary opens the door to wide array of potentially helpful information and resources.

2.    Develop an Investment Mindset.  When considering the investment budget, it is helpful to think of it in these terms - How much does it really cost for the business to be shut down for a day, an hour, a week.  The results of good planning can be more powerful, and make far more economic sense than any insurance policy.

3.    Know What, and Who, is Critical.   This means stripping out all of the bells and whistles and precisely identifying the specific people, processes, systems and services that generate your revenue.

4.    Know Your Data – Love Your Data.  Identify critical data (this is often the hardest part), consolidate the data, and protect the data.  The good news is that there are a wide variety of affordable tools and aids available for the consolidation and protection phases.

5.    Eliminate Single Points of Failure.  Take the list of critical items from #3 and identify the ones whose individual elimination would bring revenue generation to a halt. Cross-training personnel, combined with supplementing a small number of core services and hardware can make a tremendous difference.

6.    Backup to Get Back Up.  A regimented, formal backup policy is a lynchpin opportunity in protecting the business.  Plan to rotate and securely store the information offsite.  Bank safety deposit boxes, weather and fireproof home safes or any institutional lockbox are all great options.

7.    Test Your Shutdown and Resumption Plan.  Pick one weekend every quarter to perform a soft shutdown and restore of the IT infrastructure and simulate critical failovers, like Internet and power.  Put any issues that surface at the top of the IT work plan to be addressed immediately.

8.    Communication is Key!  Knowing Who-will-do-What-by-When is key to getting resuming business as quickly as possible.  Leveraging existing technology- the company website, online user groups, text messaging and personal voicemail can all accelerate the return to business.  An effective Communication Succession Plan can ensure the most rapid and effective contact with the business team.

9.    Review and Update the Plan Every Six Months (at least!).  It’s surprising how fast the IT infrastructure of a business can change.  Consistently reevaluating all of the critical components of the revenue engine make the difference between thinking the business is prepared and knowing that operations are safeguarded.

10. Know When to Get Help!  Simply put – make the wisest investment possible for the company.  Minimizing the cost of stakeholder time and attention diverted from revenue generation and business achievement can make a prudent investment a homerun.  Being able to plug in a Subject Matter Expert, with a history of lessons and experience in the execution of a continuity plan, and the insight to tailor the solutions to your specific business needs can make a large, positive difference – fast!

With the right mindset and governance any business can turn IT into a formidable tool for enhancing and protecting the productivity and profitability of the enterprise.  The Bonus - Planning for and insulating the business from large, systemic risks can immediately reduce or eliminate the profit risks presented by everyday events like losing an Internet line, or a server, or even the exit of a key employee.

The storms that affect businesses can take many forms beyond a single weather event.  The true opportunity available is to start now, before the next storm comes.

Read the full article here: http://www.extreme-technologies.com/index.php?link=news100208

www.extreme-technologies.com

(281) 293-7800