In the second of a three-part series on computer hardware, Alison Birrane examines the options for procuring computer equipment in uncertain economic times.
UPGRADING computer hardware is necessary for business when outdated and unreliable computers that are connected over a slow and cumbersome network become a source of frustration and declining productivity.
However, procuring the essential equipment is an expensive exercise and financing the new equipment is a major consideration, particularly in uncertain economic times.
Sources in the Western Australian computer hardware industry say that hardware is generally replaced in cycles of between two and four years and that it is an asset that outdates quickly.
However, a recent report by Gartner indicated that organisations may be delaying the procurement of computer hardware until the economic conditions improve, causing a significant decline in the PC market.
So with the cautious attitude to spending, what is the best means to finance new computer hardware?
The most appropriate form of equipment finance depends on many variables including tax considerations, the type and cost of equipment required, what it is to be used for and for how long.
Purchasing computer hardware has the benefit of allowing a business to own the equipment outright. It is then listed on the balance sheet as an asset, however, the downside is that it requires a large initial capital outlay and may become outdated with subsequent hardware releases.
Equipment finance offers an alternative that has the benefit of allowing an organisation to procure the equipment they need without using large amounts of capital.
It also offers flexibility in terms of repayments and, depending which type of equipment finance is used, can have tax benefits.
Sources say hire purchase and operating leases tend to be the most common form of computer hardware finance.
Operating leases work by a financier retaining ownership of the equipment while the business makes regular rental payments.
Operating leases have traditionally been favoured by larger companies because the assets are off the balance sheet and there is the certainty of fixed payments
While the rental repayments are not normally tax deductible expenses, operating leases allow computer equipment to be upgraded at any time meaning organisations can keep up with latest hardware releases.
Hire purchase is another alternative.
It is similar to a lease, except the business automatically purchases the equipment upon completion of the contract and depreciation and interest charges can be tax deductible.
If it is not feasible for a business to purchase a computer either outright or through equipment finance, short-term hire can provide a solution.
Short-term hire provides a less expensive option in cases where tightening capital expenditure means restrictions are placed on procurement.
It allows a business access to much-needed computer equipment immediately for anywhere between one day to 12 months.
Short-term hire is often used as an alternative to purchasing or leasing computer hardware if the equipment is required for a particular project such as a training course, exhibition, conference or trade show.
For an additional fee companies that supply computer equipment for short-term hire can set up the equipment and do any necessary network and troubleshooting, meaning those skills do not need to be sourced elsewhere.
Security can be a concern when hiring computer equipment, however, reputable firms wipe the hard drive and perform servicing and computer maintenance on each computer at the conclusion of each lease – ensuring confidential files cannot be accessed by unauthorised users.