Financial Impact of renting

Renting is an operating expense of any organization. It is the cheapest option to utilise assets whether for a short term or long term. Usually such kind of renting agreements are being entered into by the organizations to reduce capital expenditure. This helps to reduce cash outflow and there is usually flexibility to use such assets over a period of time lesser than the life of the asset.

An IT resource includes laptops, desktops, servers, tablets, apple products etc. If you purchase these products for your organization, it will cost you the following:

> Cost of the IT asset
> Insurance charges
> Warranty charges
> Anti-virus software charges
> Repairs and maintenance of the IT asset during its life.

As against the abovementioned cost, taking the IT assets over rent would reduce to a bare minimum cost that is the rental charges. That’s it, no other charges are to be paid. The amount saved by not purchasing the asset is a kind of interest free loan which you could use it in your business and make profits from it. This will have 2 basic implications-

> The organization do not have to borrow capital from outside, hence you save upon your finance cost or interest cost. This is a kind of indirect income for the organization adopting the rental IT resource model.

> The lesser you take loans, the better is your credit score which will help you to avail loans at a reduced rate of interest in future. And expansion of your business would come at a quicker pace than earlier projected.

Renting charges is an operational cost and hence it entails place in the profit and loss account in the financial statements. Since it is a cost, your profit lowers and this helps you to save tax on your profits. The organization that does not purchase assets and opts for the renting of resources, helps them to avoid taking loans from the financial institutions. This makes the balance sheet look cleaner and it helps you to attain cheaper finance whenever you need money. Moreover, the cost of IT resources also reduces.

These benefits can actually change the cash budgets of an organization positively. And the company can focus on core business activities, now with additional cash in hand. If there would have been one such decision that would turn your organization into even more profitable organization, it would probably be the decision to opt for renting of IT resources than to purchase them.