Cloud computing has many functional benefits for business (check these out here). However once the decision to implement a cloud computing solution into a business IT strategy has been made, funding options need to be considered. It’s important to note here that there are two key costs in respects to business IT: hardware costs and ongoing IT service. In this article we look specifically at hardware costs.
Invest in own Cloud Computing infrastructure
The benefit of investing in infrastructure is that once hardware is established there is no ongoing cost for hardware, apart from ongoing maintenance, replacing parts etc.
From a cashflow perspective a higher amount of capital is required to build the server. This amount can vary, but is likely in the order of thousands of dollars. This is because for a business to establish a local cloud computing solution appropriate temperature control conditions must be established, on-site and off-site back-ups need to be implemented and enterprise firewalls need to be installed.
While the initial upfront cost can be substantially higher than if a business were to outsource hardware costs, a long term analysis should also be conducted to see if there is a break even point for a business. For example, it may be cost effective for a business to invest in an in-house arrangement if a certain number of employees are intended to use the service.
Outsource Cloud Computer hardware
Outsourcing the cloud computing hardware set-up to an external cloud computing service provider has a number of benefits. From a cashflow perspective any initial costs are generally much lower than if a business were to install its own hardware. On top of this, a business does not need to worry about additional costs such as temperature control/firewalls etc., as these functions are managed by the cloud computing firm. From a cashflow perspective the benefits of making periodic payments for a cloud computing means a business does not have to find funds to invest into cloud computing infrastructure.
However, as with investing in ones infrastructure, there is a cost benefit analysis that should be conducted. The key factor to consider is that for each additional employee, hardware costs will increase.
In discussing business cash flow it is important to consider taxation. From a taxation perspective, upfront capital costs can be treated very differently to ongoing cash flow payments. Andrew Clark from Gibson Clark Chartered Accountants has suggested a few things to consider;
- Depreciation: upfront costs may be eligible for depreciation write-offs in future tax years
- Immediate tax write-offs: depending on the nature of the expense some IT costs can be written off immediately
- Small business tax concessions: small businesses with revenue under $2 million may be eligible for additional tax concessions
Note: you should check with your tax adviser before making any decisions
Making the decision
Once a cloud computing solution has been determined as an appropriate IT strategy a business must consider the appropriate funding option. There are both cashflow and taxation considerations that should be considered. This decision should be made with a cloud computing consultant and a tax adviser – to determine which strategy is right.
To find out how a cloud managed services solution can improve your business IT check out our Cloud Computing page for more.
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