When the Federal Reserve meets later this month, experts expect the central bank to vote for an increase in interest rates. This is significant news since it has been nearly six years since the last time interest rates were raised in this country. For IT pros, this means one thing: It may soon be a lot harder to get your CFO’s signature on a new cap-ex technology purchase – even one that’s already in your budget for 2016.
If you’ve already prepared your 2016 budget, now may be a good time to revisit those plans and talk with your CFO about sales projections, access to capital and anticipated cap-ex spends. You may also want to start investigating the smartest ways to finance an upcoming IT purchases in case the interest rate increase does indeed occur.
Where do you start? With an open, proactive conversation. The finance experts at Logicalis suggest using the following five questions to open a dialogue with your CFO today:
- Can we access the capital we need for 2016 IT projects? The risk profile for organizations looking for capital today is already fairly high, and if rates go up, it could go even higher further restricting access to capital.
- Should we be thinking about leasing? In the past, CIOs and CFOs considered leasing only when they were able to negotiate favorable terms. With an interest rate hike pending, however, the decision about turning to leasing will be less about terms and more about the weighted cost of capital. Leasing costs, as a rule of thumb, don’t increase proportionately with capital interest rates. Imagine, for example, the fed agrees on a 25-basis-point increase; interest on debt will rise by that same 25 basis points, while the cost of leasing may only increase 10 to 15 basis points. As a result, as interest rates rise, constrained access to capital will make leasing a much more inviting option.
- How can we better negotiate with suppliers to mitigate the impact? Instead of negotiating with technology suppliers on the price of their IT purchases, consider negotiating on terms If you have net 30 terms now, how would a change to net 45 impact your business? CIOs and CFOs should be talking now about the vendor terms and conditions that could help offset the costs incurred due to an interest rate increase.
- What will a stronger U.S. dollar mean to international sales? An increase in interest rates yields benefits in terms of strengthening the U.S. dollar, but for organizations doing business abroad, it also creates questions about the validity of existing sales forecasts. If forecasts change, what impact will there be on the business and its ability to fund proposed capital expenses?
- As the CIO or CTO, what can I do that will help? This may be the perfect time for organizations that have been considering a move to the cloud to consider taking the next step. Are there cost savings that could be gleaned from a move to a hybrid cloud strategy? Would tapping as-a-service IT offerings save costs internally? What savings might be possible by partnering with an experienced managed services provider? These are just a few of the questions top technology pros should be asking themselves now as they look for ways to drive value and innovation in the coming year. If considerations like these have been on the back burner, it might be time to accelerate those plans.
Want to learn more? Experts say the real value of a business’ IT infrastructure comes from its use, not its ownership. Therefore, with an interest rate hike pending, it’s important for organizations considering a major technology purchase in the coming year to consider alternative financing vehicles such as leasing. Now may also be a good time to consider outsourcing internal “lights-on” tasks like 24x7x365 monitoring and management of your IT systems to an experienced partner. Read about the six surprise benefits of managed services, watch a video about managed services, find out how managed services works, then explore the business benefits of managed services here: http://ow.ly/V1WCa. Wondering if a move to the cloud could save your business money? Take part in a Cloud Readiness Workshop to find out: http://ow.ly/V1Ytl.