Technology in tough times: stay abreast with smart cash-flow positive instruments
The current economic climate in South Africa is turbulent. The rand is volatile against major currencies, VAT has been increased for the first time in 25 years, and rising petrol prices are always on the horizon. Businesses are experiencing higher costs and lower volumes, as well shifting customer demands. Companies need to find ways to minimise their spend and maximise their revenue as best as they can. Organisations now need to re-evaluate their investments, but without compromising on growth.
During an economic downturn, technology budgets, among other expenses, are often the first to get cut as companies look for ways to save on costs. However, as the world fully embraces the digital transformation and the advantages it brings, technology has become vital for effective business operations. The latest and greatest technology can often be the differentiator that sets a company ahead of its competition, but the cost can understandably be prohibitive.
"CFOs in the business world have undoubtedly noticed that technology budgets are steadily on the rise," says Dave Davenport, CEO of MotherG. "There is a tremendous amount of pressure being applied to the IT industry by the market to come up with better products." As more advanced products become available, the implementation of newer technologies, across multiple users in an organisation, requires huge capital outlay. However, the cost of holding onto outdated technology and maintaining old machinery makes this an unviable option.
According to Gartner, 80% of total IT costs occur after the initial purchase. After purchase expenses such as security measures, software updates, computer repair and general support contribute significantly to the total cost of ownership. Technology needs to be refreshed on a regular basis to ensure these expenses don't carry over long after the equipment has passed its optimal levels. An organisation must have the most up-to-date equipment to save time, decrease costs for the business and make processes more efficient.
The challenge now rests with the CIO or CTO to find ways to introduce advanced technologies without breaking the bank. In the past, it was accepted that businesses that want the latest technologies and solutions must be prepared for the huge expenditure. This is no longer the case. Leasing solutions are a great way to ensure companies stay ahead of the technology curve while keeping costs in check.
Leasing is a good move for any business that often finds it has to stretch its budgets over a multitude of operating costs, such as staff, office space rentals, expansions, marketing, etc. Leasing frees up cash reserves for core business activities or redirects cash into appreciating assets that are needed to carry out business functions.
When you partner with a specialised leasing company like InnoVent, another advantage of leasing over outright purchase is that an organisation will always have the latest technology on site at a fraction of the cost. InnoVent's subsidised financial offering reduces the cost of the hardware. This means an organisation only pays for the equipment for the duration that it's used. In doing this, overall costs reduce significantly, resulting in a lower cost of finance that compares favourably to traditional forms of finance.
Leasing also assists with the facilitation of life cycle management practices. Most IT environments are constantly evolving, with new hardware added or new applications launched, and software and operating systems upgraded. All these moving parts need to be managed to ensure everything runs smoothly and is kept up to date. A leasing contract that's paired with an asset management component will help an organisation remain compliant with licensing requirements and avoid IT wastage.
Another point for consideration is that all technology-enabled devices have a short life span. Not only does the asset value depreciate with time, but the need to dispose of these assets is inevitable. Asset leasing providers like InnoVent eliminate the hassles of storing and disposing obsolete assets, and when it's time to refresh with new equipment, InnoVent will assist with the planned upgrade.
In uncertain times, ensuring a business has a healthy cash flow is key. Leasing is a cash-flow positive way to ensure you have the technology needed to improve work processes and remain competitive. With costs spread out evenly throughout the leasing contract, payments are structured over the useful life of the asset and upgrades are scheduled around technology life cycles. Whether an organisation is cash rich or follows a conservative capex model, cash can be effectively utilised in other areas of the business for strategic or operational requirements, or simply left in investment instruments that yield a superior return.
For more information on leasing technology equipment, please visit the InnoVent Web site.