Compare Leasing vs Buying Business Software Costs
Leasing Business Software Overview
Leasing is a great way to acquire business software without shelling out a lot of cash. It is a popular option among start-ups, small businesses or companies that need to preserve working capital for other expenses.
Just about any type of software can be leased, including accounting software, manufacturing software, sales management software, point-of-sale software, CRM software, CAD software, E-commerce software, inventory management software and many more.
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Leasing Business Software Cost
With a lease, you’ll pay a monthly fee over a period of years to use the software. The cost of leasing depends on the price of the software, the length of the lease and your credit history. Often, setup and training are provided at no additional cost.
Leasing $20,000 worth of software would probably cost about $700-$750 per month for three years or $450-$500 for five years, with good credit. A $100,000 piece of software would cost about $3,000-$3,500 per month for three years or $2,000-$2,500 for five years.
Leasing Business Software Pros
- Less expensive upfront – Leasing requires little or no money upfront. Keep your cash in the bank for other expenses, or use it to grow your business.
- Easier upgrades – With a lease, you’re never stuck with out-of-date or obsolete software. Upgrades and add-ons can be built into the lease.
- Ongoing support – Lease agreements usually include the cost of training, technical support and ongoing maintenance. And every time you renew the lease, you’ll have access to the latest software upgrades.
- Immediate tax benefits – Most leases are fully deductible in the first year.
Leasing Business Software Cons
- More expensive in the long run – Don’t be fooled by the fact that leases are very inexpensive upfront. You’ll pay more in the long term for the same equipment. Leasing companies build in fees that don’t exist when you purchase software outright.
- Contractual obligations – When you sign a lease, you’re bound by the terms and conditions for the full length of the agreement. Even if you stop using the software or it becomes obsolete, you will be required to make payments.
Buying Business Software Overview
For some businesses, purchasing software outright is a better option. You should consider buying outright if you have significant cash flow, if you anticipate using the software for a long period of time, or if you have a robust in-house IT staff.
Purchasing Business Software Cost
If you purchase business software with cash, the price you see is the price you pay. You won’t have to worry about interest or fees. However, you may have to pay extra for things like training, installation and technical support.
Purchasing Business Software Pros
- Lower overall cost – Purchasing business software outright is usually cheaper in the long run than leasing, even when you factor in additional costs for training, installation and support.
- No recurring expense – When you pay for software outright, you’ll never have to worry about monthly payments. You won’t be adding another fixed cost to your monthly expenses.
- Ownership – When you purchase software, it automatically becomes an asset to the business. Lease payments, on the other hand, are viewed as a liability. To boot, the software is also yours to keep for as long as you like.
- Favorable tax deductions – The IRS allows you to write off software purchases. If the business happens to be having a good year, buying will provide a better deduction than leasing.
Purchasing Business Software Cons
- Costs more upfront – Purchasing outright requires a significant upfront investment. Some companies are simply not in a financial position to part with the necessary cash flow.
- Harder to upgrade – A few years after your purchase, the software may be out-of-date or obsolete, but you’re stuck with it. Upgrades and add-ons will cost you extra.
- No option to exchange – If you don’t like the software you’ve purchased, you’re out of luck. With a lease, you can trade in the software for something better when the term expires.
- Technical issues – When you purchase business software, managing the technology is largely the responsibility of your company. You can get tech support from the provider, but it will cost you extra. With a lease, some amount of support is typically included in the monthly fee.