Inflationary pressures and the prospect of a global recession are making many organizations cautious about their spending plans for 2023. However, historical trends suggest that strategic technology investments during economic downturns help build long-term business resilience.
Two recent examples support this premise. Increased investments in digitization and cloud services were essential for helping businesses survive and prosper during the Covid-19 pandemic. During the Great Recession of 2008-2010, investments in fiber backbones, wireless broadband and mobile computing set the stage for post-recession profitability.
Economists and industry analysts suggest a similar scenario for 2023. While organizations are likely to rethink their IT priorities, few are expected to slash spending. Gartner, for example, predicts worldwide IT spending will reach $4.5 trillion in 2023, an increase of 2.4 percent from last year. Meanwhile, Forrester analysts predict U.S. tech spending will grow 5.4 percent.
“Enterprise IT spending is recession-proof as CEOs and CFOs, rather than cutting IT budgets, are increasing spending on digital business initiatives,” said John-David Lovelock, Distinguished VP Analyst at Gartner. “Economic turbulence will change the context for technology investments, increasing spending in some areas and accelerating declines in others, but it is not projected to materially impact the overall level of enterprise technology spending.”
Cloud applications and services are likely to attract a good deal of that investment as organizations continue to transition away from capital spending on in-house infrastructure. Cybersecurity, analytics, automation, artificial intelligence and machine learning are also likely spending targets.
How Technologent Can Help
Technologent helps customers address their technology priorities while also resolving budgeting concerns. Through our Technologent Financial Services arm, we offer a range of creative financing and cost optimization strategies and services that can help organizations preserve cash flow.
- Fair market value (FMV) leases. Also known as an “operating lease” or a “true lease,” an FMV lease is an affordable way to upgrade and update business equipment of all kinds while conserving cash. At the end of the lease, the customer can either return the equipment, upgrade to new equipment or purchase the equipment at fair market value.
- $1 buyout leases. Also known as a “capital lease,” this arrangement is similar to purchasing equipment with a loan. It has a higher fixed monthly payment compared to FMV leases but allows the customer to purchase the equipment for only $1 at the end of the lease term. This arrangement also has tax advantages. Using Section 179 of the tax code, customers can deduct the entire cost as a business expense in the first year of purchase.
- Consumption-based billing. As-a-service consumption-based billing allows customers to pay for hardware, software and services in much the same way consumers pay for electricity, gas and water. In addition to eliminating capital expenditures, this pay-as-you-go model creates flexibility by making it easy to scale resources up or down as needs change over time.
- Installment payment agreements. This model allows customers to break up large purchases into a series of smaller, more manageable payments over time. From a budgeting and accounting perspective, IPAs are treated as capital transactions in which ownership is transferred to the customer at the end of the term.
Budget issues are leading organizations to rethink their IT spending priorities, but they needn’t force you to abandon mission-critical investments. Ongoing technology improvements help build operational efficiency and are essential for long-term resiliency. Whether you are looking to reduce capital spending, optimize depreciation or monetize fixed assets, our financing specialists can work with you to design a solution tailored to your needs and goals.
February 2, 2023