Summary
The research should be carried out by visiting firms that deal with leasing equipment for short and long periods of time. Adequate information should be obtained to ensure that decision makers do not make a wrong decision when choosing the method in which to upgrade their computer equipment.
The management should make sure that they understand the benefits and weaknesses of every option in order to make a wise decision. First, they should consider how fast the equipment needs to be updated and the cost of purchasing. After considering several factors in the field of computer and their software, I recommend that my organization should consider leasing this equipment. This is because they become technologically out dated very fast, hence, contradicting the essence of purchasing.
Introduction
This research was carried out to identify the most appropriate method organizations should consider when there arises a need to upgrade their computer equipment. This means that organizations should consider the most economical way to go in order to save on cost, hence, achieving one of the main goals which is to cut cost and maximize profits.
The research should be carried out by visiting firms that deal with leasing equipment for short and long periods of time. Adequate information should be obtained to ensure that decision makers do not make a wrong decision when choosing the way in which to upgrade their computer equipment (Nevitt, Fabozzi and Mathew, 2011). In addition, visits to firms that sell new computer equipment should not be ignored.
Investigations on these issues should be done by people from the organization by conducting interviews from these target firms. This means that the organization should consider sending representatives to enquire about leasing and purchasing from dealers. Furthermore, the organization should consider visiting computer specialist to consult about available options.
This is extremely important as specialists in the field of computers may give most viable information on leasing and purchasing equipment to upgrade computer networks. All information collected should be analyzed and the most advantageous method be recommended to the decision makers.
Discussion
Computer equipment needs to be updated very often, hence, raising the cause for thorough consideration of the most viable way of conducting the upgrading process. This means that organizations that have to upgrade their systems often need to consider the cheapest and most economical method in order to cut operational costs (Oz, 2008).
This means that they should weigh out options and decide between purchasing and leasing to find out which has most advantages. The option with most advantages should be considered and, therefore, adapted by the organization in order to maximize profits and put costs as low as possible.
Advantages
Leasing computer equipment is economical for the organization because updating computer equipment should be done very often. This is essential for the organization to achieve its organizational and operational goals as advancement in technology goes along with effectiveness in production and other operations. For example, advancement in computer software translates to increase in computer speeds, hence, increase in speed of all operations carried by computer systems within the organization.
Leasing equipment enhances flexibility as organizations may lease the right equipment to handle tasks at hand. This means that equipment can be hired on demand, hence, avoiding instances of organizations having to purchase equipment that are used occasionally.
Organizations work in a diverse nature and they may require to carry out special tasks demanded by customers (Kendall, 2008). They can lease the equipment to handle those specific tasks and take back once the task is over, hence, saving on the costs that could have been incurred in purchasing new equipment.
Leasing equipment allows organizations to acquire them without incurring huge expenditures when compared to purchasing. In most cases, purchasing equipment may affect organization’s cash flow since down payment may be required.
This means that when any organization has decided on making a purchase, huge sums of money may be involved, hence, leading the management to incur costs (Gelinas et al, 2004). In leasing, depending with the lease period organizations may save so much money as they have to incur very minimal expenses in acquiring equipment to carry out their operations.
Leasing of equipment is very important because organizations can use lease payments as expenses in order to reduce taxes when filling their tax returns. This means that lease payments should be recorded as organization’s expenses, hence, reduced from the taxable amount.
This reduces the amount of tax the organization has to pay, hence, translating to reduced operational costs. This advantage is important because an organization that leases all its equipment and records them as organizational expenses end up reducing their taxes by huge sums of cash. This becomes profitable to the organization because at the end of any accounting period, the amount paid to tax collector is very little as compared to what could have been paid if they bought that equipment.
Another advantage of leasing equipment is that it passes the load of obsolescence to the lessor. This means that since computer equipment gets outdated very fast, the organization will not be faced by hectic time of dealing with the outdated goods (Chandra, 2005). Instead, they should hire out new equipment that matches current technology. In addition, cost associate with disposal of outdated computer equipment is not on the organizational side but on the side of the lessor.
Disadvantages
On the other hand, leasing can have its disadvantages as well. One disadvantage of leasing equipment is that the overall cost of hiring the equipment is more than the price of a new computer.
This is because payments made throughout the lease period include a given commission for the lessor. Therefore, purchasing new equipment ends up being cheaper than leasing the equipment for long term. Another disadvantage is that the organization lacks ownership of the leased goods, hence, cannot manipulate or dictate much over the equipment.
In fact, this becomes hectic when the equipment ceases to be used in the organization before the end of the lease period. The organization cannot dispose it since the owner of the good is the lessor. Finally, leased equipment has to be paid for even if they are not being used by the organization. This means that the organization has to pay for the equipment throughout the lease period regardless of whether they enjoy its services or not.
Purchasing equipment
Advantages
One advantage of buying equipment is that the organization acquires ownership once the good has been purchased. This advantage can be enjoyed when dealing with equipment that does not run technologically out of date very fast (Harold, 2010).
Organizations may also consider tax incentives as an advantage hence considering the option of purchasing equipment. This means that the government may at times wave or reduce taxes for some equipment to encourage people to invest in them. In fact, buying goods can have the organization enjoy tax reductions hence cutting down on operation expenses.
Disadvantages
Purchasing costs are too high, hence, making the entire exercise very expensive for organizations to purchase goods that get technologically out of date very fast. In order for organizations to make such purchases, they might be required to obtain loans from commercial banks which end up becoming difficult (Hosford-Dunn et al, 2008). This is because banks require down payments in order to give loans to be paid on monthly payments.
Another disadvantage with purchasing these equipment is that they run obsolete very fast, hence, having the owner face a challenge of re investing in new equipment. Equipment that gets technologically faced out tends to have very little resale value, hence, becoming hectic to the organization to dispose the out dated equipment.
Conclusions
It is important for organizations to put into consideration several factors before choosing on the method of upgrading their computer equipment. The management should make sure they understand the benefits and weaknesses of every option in order to make a wise decision.
First, they should consider how fast the equipment needs to be updated and the cost of purchasing (Harder, 2004). Obsolescence is another factor to be considered because once equipment becomes obsolete, they become a burden to the organization. After considering all these factors, the decision makers should be able to choose the most appropriate method which align with the organization’s objectives of maximizing profit and minimizing cost.
Recommendations
After considering several factors in the field of computer and their software, I recommend that my organization should consider leasing this equipment. This is because they become technologically out dated very fast hence contradicting the essence of purchasing. The element of equipment becoming obsolete also leads to my recommendation because, once these goods cease to be used in the organization, they will end up becoming a bother to the organization.
References
Chandra, H. (2005). Fundamentals of financial management. New York: Tata McGraw-Hill.
Gelinas, U. J., Sutton, S. G., Hunton, J. E. & Hunton, J. (2004). Acquiring, developing, and implementing accounting information systems. New Jersey: Thomson/South-Western.
Harder, F. (2004). Fashion for profit: from design concept to apparel manufacturing … a professional’s complete guide. London: Frances Harder.
Harold, J. R. (2010). An Introduction to Accounting and Managerial Finance: A Merger of Equals. London: World Scientific.
Hosford-Dunn, H., Roeser, R. J. & Valente, M. (2008). Audiology practice management. New Zealand: Thieme.
Kendall, K. E. & Kendall, J. E. (2008).Systems analysis and design. San Jos: Pearson/Prentice Hall.
Nevitt, P. K., Fabozzi, F. J. & Mathew, J. V. (2011). Equipment leasing. Sydney: John Wiley and Sons.
Oz, E. (2008). Management Information Systems. Michigan: Cengage Learning.