Renting office technology in SA
Why it's right for modern South African businesses.
Rental finance in relation to office technology: photocopiers, PABX systems, CCTV, IT assets and so on, has had a long and sometimes challenging past in the annals of South African business history.
However, for businesses that correctly harness the power of rental finance for their office technology needs, it can be rocket fuel for their productivity and earnings.
Perhaps let's start with why there is usually a negative connotation around rental finance and then discuss why, when correctly handled, the concept of renting rapidly depreciating office technology is in fact the correct operational decision for almost all businesses.
With the advent of the Internet, price comparison has become as simple as the click of a button, instantly providing clarity on the market price of a disparate range of products, including photocopiers, PABX systems, CCTV systems, IT equipment and more.
However, this was not always the case. In the recent past, the lack of pricing transparency caused a vast variability in the rental price of essentially the same assets, which could not be easily checked against peers in the market. In some cases, this pricing difference was legitimately explained by early settlements, but in certain scenarios, this was not the case. In the event, some businesses began to feel that buying their office technology outright/through a once-off purchase would provide a better operating solution for them as opposed to mispriced long-term rental agreements.
So, why is renting office equipment a better option?
The case for correctly priced office technology rentals is strong for a number of reasons that are laid out below:
Office technology has a shelf life, after which its net productivity gains begin to drop off, see below graph.
Past a certain age or usage level, IT assets actually begin to cost businesses more in terms of maintenance, downtime, frustrated employees and customers. At this stage, office technology invariably needs to be replaced for the firm and its employees to remain operationally competitive in its market. This replacement cycle is as regular as clockwork and businesses that plan for this, make use of office technology rentals.
This allows these businesses to correctly provision for the replacement of their IT equipment on a monthly basis and deduct the costs as a fully tax-deductible expense, off balance sheet expense in their income statements, ensuring there are no nasty capital raising requirements every 24 to 72 months as their photocopiers, PABX systems, IT equipment are then required to be replaced.
Developing economies with high interest rates have currency depreciation, so what does that have to do with office automation rentals?
A lot of people believe that IT equipment gets cheaper every year, but that's only applicable if you keep using legacy technology. Yes, that analogue copier or PABX is cheaper today than it was three years ago, but it's also obsolete. The Nokia you purchased in 2006 is R500 today, but can you use it and remain relevant in the business world? In truth, modern IT equipment increases very slightly in cost each year in US dollar terms.
Taking the above into account, we then look at currency depreciation for South Africa and most other developing economies; these economies typically have higher interest rates and currencies, which depreciate slightly each year to compensate for those higher interest rates.
So, from this we can determine that IT equipment costs increase each year in most developing economies, with the slight depreciation of the currency. This is not a problem, as typically, inflation takes care of the cost increase; however, businesses that don't plan for this with rentals that at least compensate for this change are invariably surprised by large cost step-ups every 24 to 72 months when replacing their IT equipment.
How do rentals alleviate this?
A well-priced office equipment rental will have an escalation. This annual escalation moves upwards yearly and resets your monthly operational expenses to correctly reflect the true cost of replacing the office technology used by your business.
Taking the above two points into account, it's easy to see why businesses interested in staying relevant in today's technology, or that simply want to ensure the true cost of replacing their IT equipment is reflected in their accounts, need to consider handling all their office technology procurement via rental.
For more information about photocopiers, PABX systems, CCTV and IT asset rentals, contact United Business Solutions here.