Device as a Service: The Balance Sheet Savior

Nothing can catch a business off guard as much as technology upgrades. Without someone tracking and planning for the inevitable license renewal or laptop refresh, a business can be blindsided with equipment costs they might not necessarily have the funds for. In this scenario, a business has three real options and the choice between the three is going to come down to the business’ financial health and unique needs.

Purchase

The business could pony up the cash and purchase the equipment outright. When they do this, their cash will drop – reducing their quick/liquid assets. They will increase their fixed assets in response, which will depreciate over the next 10 years, reducing their net income. This will have an impact on ratios, decreasing the current and quick ratios. Assuming no loan or revolver access is needed, those will be the only ratios impacted. This is generally the preferred method of purchase if a business has the cash flow and room on the balance sheet to take on the increase because it is generally less costly over the useful life of the equipment.

Lease

The business could seek out a financing partner. There are two options when it comes to leasing,

• Fair Market Value (FMV)
• $1 Buyout

FMV assumes the equipment is returning to the financer at the end of term, thus the payments are a little bit lower. FMV leases do not sit on the balance sheet as a liability – they are considered an operating expense and will sit on the P&L only. $1 Buyout leases end with the business owning the equipment. This results in higher payments and the lease sits on the balance sheet both as an asset and as a liability. As payments are made, the liability is reduced. The monthly payment expense will also hit the P&L. The ratios shouldn’t be impacted much by either scenario, as the increase in assets is offset by the increase to liability and they wash each other out on the balance sheet. The negative to leasing is that the business will pay more over the term of the lease than if they would have done an outright purchase and sometimes working with finance companies puts a layer between the business and the true vendor.

Device as a Service (DaaS)

The business could also find a vendor that offers Device as a Service (DaaS). This is a fairly new concept that is gaining a lot of traction with companies that prefer predictable operating expenses along with device lifecycle management. DaaS behaves much like an FMV lease as far as financials go, nothing sits on the balance sheet because it is not assumed that the equipment will be retained at the end of term. The monthly payments are manageable and sit on the P&L as an operating expense. In addition to the equipment, the business will also likely receive additional services. These can vary from vendor to vendor, but generally include,

• asset life tracking
• warranty management
• asset disposal
• drive erasure

Where this might be the most popular is for businesses that don’t have their own IT department or has an IT department that might struggle to keep up on refresh schedules and warranty claims. It is generally recommended that businesses renew their equipment every four years. The DaaS vendor will ensure that new devices are sent out on that recommended schedule ahead of the return of the original equipment, ensuring a seamless transition and optimal equipment for employees, thus keeping businesses up and running like a fine-tuned machine.

Choose Wisely

Ultimately, the decision boils down to your business' structure, financial strength, and preferences for predictability. Consider this guide a compass, urging you to assess your needs, consult financial advisors, and scrutinize the terms of each option before embarking on your technology investment journey.

Discover the Vista Advantage

For a seamless and comprehensive solution to your technology needs, consider Vista IT Group. With a range of services catering to technology purchasing, leasing, and DaaS, Vista is your trusted partner in navigating the complexities of business technology.

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