Leasing Contracts: Not All Are Equal

The above discussion addresses what is commonly referred to as fair market value (FMV) leases. These are the types of leases that automobile companies use to move their cars more rapidly and more frequently. The lower monthly price entices buyers and the contract guarantees that the lessee will be in the market again sooner than a buyer, in that buyers usually do not trade in cars in less than four or five years at a minimum.





Finance vs. TCO

When the CFO or finance department looks at a lease, they usually just look at the acquisition costs and tax implications. This is good but is only half a story. Anyone acquiring IT equipment needs to examine the full impacts of the decision over a three- to five-year period. This means one needs to evaluate the operating costs so that a full total cost of ownership (TCO) analysis is understood. Robert Frances Group studies have found, for example, that what may look good to finance when examining the purchase of a single server proves to be very expensive when examining the TCO of the multiple servers required to be used over a set operating period. Unless the IT executive brings this information forward and explains the details, it is possible for the wrong decision to be made.





Explore all Angles

FMV leases can and should be a win-win for all parties, but executives need to ensure they fully comprehend what they are getting into and have negotiated the price and the terms. Executives should work with the finance department and legal to determine whether to lease or not, at what price points and under what contract terms and conditions. All angles should be explored and, if needed, outside leasing assistance should be sought. Executives should always negotiate with multiple lessors, so that they have a better understanding of the options and close a better deal.

Other articles by Cal:
15 Reasons it Makes Sense for IT to Lease

Cal Braunstein is lead analyst at Robert Frances Group, which provides advisory, consulting and research services to senior executives in IT and LOB management as well as for marketing/sales management for companies that provide IT and communications services and products.