Every business owner knows that in order to stay competitive, they need to have great business management software. But, with the ever-changing landscape of technology, it can be hard to keep up. Not to mention, purchasing new software can be a significant investment. That's why more and more businesses are considering leasing as a way to finance their software needs. Let's take a look at some of the advantages of leasing software and the equipment needed to run it for your business.
Conserves Capital
One of the biggest advantages of leasing software is that it conserves capital. When you lease software, you are able to conserve cash and preserve working capital. This is because you are paying a fixed monthly payment for the software, not the entire purchase price. By leasing, you are able to free up cash that can be used for other investments, like inventory that you can sell.
In addition, it is generally accepted that you should buy what appreciates and lease what depreciates. Since software falls into the category of things that depreciate, it only makes sense to lease it. This way, you are able to get all of the benefits of having the latest and greatest software like Windward System Five on Cloud without tying up valuable capital.
Tax Advantages
Another advantage of leasing software is the tax benefits that may come along with it. The interest payments are tax-deductible when you finance a purchase through a loan. However, when you lease software, your entire payment may be deductible! This is because leased equipment is considered an operating expense, which means it can be deducted from your taxable income.
(Tax codes vary by jurisdiction and are ever-changing, so it is important to consult with your tax professional about the tax advantages of leasing software and the equipment you need to run it.)
Since your payments are considered an operating expense, they will appear on your Profit & Loss statement as opposed to your Balance Sheet. This is important because it means that your payments will match up with revenue generated from using the leased software and equipment. This is unlike a loan payment, which would appear on your Balance Sheet as a liability and would not necessarily match up with your revenue stream.
Fixed Costs
Another advantage of leasing software is that it allows you to budget more effectively by setting fixed costs. When you enter into a lease agreement, you agree to make fixed payments over a set period of time—usually 3-5 years. This allows you to better forecast your expenses and plan your budget accordingly. In contrast, if you were to purchase the software outright, you would have one large expense at the beginning followed by nothing for several years until it was time to upgrade again. By fixing your payments into manageable amounts, leasing helps take some of the guesswork out of budgeting for new software purchases.
Avoid Obsolescence
Finally, leasing helps you avoid obsolescence by allowing you to start using the software NOW rather than delaying and falling further behind. Technology changes rapidly and what was once state-of-the-art can quickly become outdated. When you lease software, however, you have the ability to upgrade as often as new versions become available—ensuring that you always have access to the latest features and functionality.
As technology continues to evolve at an ever-increasing pace, businesses need to find ways to keep up with current trends while still being mindful of their bottom line—and leasing provides them with a perfect solution. From conserving capital to avoiding obsolescence, there are plenty of reasons why business owners should consider leasing their next piece of software instead of buying it outright!
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