HOW TO BUY

Server Shopping Made Easy

Buy vs. Lease

After you decide on the channel, the vendor, and made your selection, you still need to pay for it. Don't just whip out a credit card, purchase order, or checkbook -- here too, there are options to consider.

The default way to buy a server is to simply offer the credit card or write that check, install the item, and start using it, as you would a refrigerator. You own it and you use it until you discard it.

An alternative with major pieces of computer hardware, is leasing. Typically, a third party buys the server and then leases it to you. (It's a paper transaction -- the server does not leave your premises during the term of the lease.) This may sound like an unnecessary complication, but from an accountant's perspective, there are four key advantages:

Instead of a big upfront payment, you have dramatically smaller monthly payments, which are less painful financially, and easier to plan for -- especially welcome during the turbulent economy of 2009.

Leasing offers tax advantages, because the lease payment is considered an ordinary expense item, making it straightforward to deduct. (When bought outright, a server purchase might be considered a capital investment, subject to more complicated depreciation accounting.)

If you are worried about technological obsolescence during the course of the lease, you can arrange to have periodic upgrades, and the cost is figured into the lease.

When you are done with the server, someone else is responsible for disposing of it. In large organizations, IT disposal costs are significant.

Basically, there are no cost surprises when you lease a server. The cost of ownership (aside from maintenance) is settled at the time of purchase.

But if you're not an accountant, some of the advantages immediately look like disadvantages:

For instance, the fact that you don't own the hardware makes customization or re-purposing a clumsy proposition.

Because you pay interest, by the end of a standard three-year lease you may have paid more for the item than what you would have if you had bought it up-front. Yet, it still doesn't belong to you.

And speaking of three-year leases, you might want to keep the item longer than three years. That is especially the case with server applications that have become an integral part of the daily operation of the organization. If it still meets your needs after three years there is really no pressing need to replace it.

For more about current lease deals and new programs from Dell, HP and other vendors, see With Leasing, SMB Servers Remain Affordable Despite "Challenging" Economy.

The simplest way to proceed is to buy what you need, keep it as long as you need it, and, along the way, modify it as needed. Then, when it's no longer needed, dispose of it by whatever method seems best at the time. However, if financial considerations make leasing attractive, your vendor will have, or be able to suggest, a leasing program.

See the grid at the end of this How-To Guide summarizing the pros and cons of leasing and buying servers.

Another buying option doesn't have all of the costs up front. Some vendors offer what are basically revolving credit accounts when buying their systems. The price is locked in at the beginning, and the buyer pays off the device over a year or two, like a credit card purchase.

The interest rate offered by vendors on these revolving accounts is based purely on the credit score of the applicant. Growing businesses with good scores will get great deals. Others will probably want to look elsewhere for financing elsewhere. Finally, keep in mind that none of these purchase options should present many difficulties -- the vendors are eager to get your money, and should help you every step of the way. First, though, decide on your own which way that you want to go.

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