The Opportunity Costs Associated with Paying Cash for Your Technology

By November 9, 2018Uncategorized

When you examine your profit and loss statement for your business, you will see the expected losses including rent, payroll, inventory costs, and more. What you won’t see, however, are the “opportunity costs” your business incurred due to certain decisions throughout the year. Let’s face it, business owners face numerous decisions on a daily basis that could affect the company’s bottom line. Owners try to do what they think is right, though sometimes, they fail to consider the opportunity costs of certain choices. One such choice is choosing to pay cash for your company’s technology rather than financing these costs.

Debt is NOT Always Bad for Businesses

After years of homeowners going upside down and consumers filing bankruptcy due to overwhelming credit card debt, the general consensus in our society is that debt is bad. While consumers may want to limit their debt burden, the same is not always true for businesses. In many cases, it can be more beneficial to finance the hardware and software your company needs. The following are only a few reasons why.

Preserving Cash Flow

When you pay out a significant amount of cash at once for new technology, you will no longer have that cash to cover inventory or monthly expenses. Cash flow is especially important to younger companies that may not have as dependable revenue flowing in to replenish spent cash. It is far easier to budget a monthly payment than a large expenditure, and paying cash may mean cutting other costs or turning away orders.

Depreciation, Upgrades, and Hidden Costs of Technology Ownership

You may think that once you pay cash, it’s a benefit that you own the technology outright. Right? Not really. Technology depreciates quickly and there are always new models and versions that may be better for your business. If you spend $10,000 in cash on technology and after two years, the tech is worth $2,000 due to newer developments, you have $10,000 in equity in a $2,000 asset. Not the best investment for your company.

On the other hand, if you finance, you really only pay for what you use of the technology. Upgrading is also much simpler if you finance, and often, your payment won’t even go up due to an upgrade. This is NOT the case if you paid cash.

Tax Breaks from Financing

You may think that paying interest is bad when you can avoid it by paying cash. However, that interest reduces your company’s taxable profits, so you pay less in taxes. If you think about it, this tax break lowers the effective interest you are paying.

Don’t Wait to Discuss Your Options With Blue Street Capital!

While financing technology can reduce your opportunity costs, always remember that not all financing is created equal. At Blue Street Capital, we work with companies to find the technology financing options right for their specific situations. If you want to learn more about how we can help you obtain the hardware or software you need, contact us today!