The SME market remains one of the largest and fastest growing in the IT industry. Gartner industry analysts predict that SMEs are poised to spend more on IT in 2006 than they did during the dot-com boom.
Yet, unlike larger companies, they are more cash and capital constrained. Financing and leasing options are often the catalysts that enable them to acquire the technology needed while helping them manage risk and achieve payback in a shorter period of time.
In a recent white paper, Revisiting the Lease vs. Purchase Decision, IDC analyst William Roch concluded: “How businesses handle the expense of IT hardware, software, and services is often a determining factor in when and whether they can acquire the new technology necessary to sustain business growth while improving productivity”. Roch explained that: “For smaller organisations, an expenditure of $1m for a server and storage upgrade may have to compete for the same budget that would fund a revenue increasing salesforce expansion”.
For many companies, financing provides a way to achieve greater strategic, operational and financial performance. Smaller businesses can benefit from financing or leasing because it makes the new technology more affordable on a limited quarterly budget. Additionally, fast-growing companies that don’t have extensive credit histories may be able to acquire equipment more quickly by leasing.
Just as with business size, financing also cuts across industry lines. Financing can help companies in any industry to stretch their budget, affordably acquire the latest technologies, and better match solutions’ costs to their benefits over time.
Take retail, for example. Financing is becoming more popular, since equipment that previously had a lifecycle of 10 years and upwards now has shorter refresh cycles. The benefits include turning big, up-front investments into affordable quarterly payments, eliminating end-of-life issues and financing hardware, software and services all on one single contract.
Network financing provides anoth-er great example. Unlike IT systems that have an optimum life cycle of three or four years, networking systems can have a longer life cycle due to their expandability and up-gradeability. That’s when a fair market value lease, with flexible payment structures that match payments to a company’s cash flow situation, would make sense.
Financing also provides benefits when launching and sustaining complex and often long-term projects. Project financing can help companies align costs and yield gains even as investments in a project are ongoing.
Single-source, highly-customised financing across a project’s entire lifecycle makes it easier for companies to manage both upfront investment and ongoing operating costs. Having the right financing structure in place increases the accountability that executives require when embarking upon major business initiatives.
According to the Meta Group; Enabling Business Transformation: Focus on Financing, “effective management and financing of major IT project initiatives is no longer an intellectual exercise, but a business imperative”. Simply put, getting the financing right will be a critical success factor.
Whatever a company’s goal: conserving cash, customising financing solutions for changing business needs, optimising the value of assets throughout the lifecycle, or all three, financing acquisitions is the simpler, smarter way to manage the IT strategy.
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