Leasing for the 21st Century Law Firm

by Christina Lord, First American Legal Finance and Kendra Edson, City National Bank

Technology can be a strategic asset – or a drain on resources.

Traditionally, law firms treat technology as a capital asset, similar to office furniture and office space.  Purchases are analyzed each year against the merits of other capital expenditure requests. 
Lately, there has been a shift to treating “technology as a utility,” as it can be a far more efficient approach. Firms that treat technology as a utility choose not to directly own the technology.  Instead, a third party owns the technology and the firm adopts a “pay-as-you-go” approach, much as it does for electricity, or any other utility.

Here today. Gone tomorrow.

The core philosophy of the technology as a utility approach is that technology is not like traditional capital assets.  Unlike office furniture, technology changes overnight; the equipment you purchase today may be obsolete by tomorrow. 

The critical nature of IT infrastructure demands that law firms view it as an ongoing operational commitment (an operating expense) and not a sunken capital expense (capital expenditure).  It is important for firms to assess the financial and formal implications of adopting a lease-based technology program – including, but not limited to creating a smooth, predictable budget and diversifying their funding sources.

Smooth Budget

Firms that treat technology as capital assets typically evaluate purchases on an as-needed or annual basis. Some years, purchases are made; other years, purchases are put off. As a result, peaks and valleys develop in IT budgets.

These peaks – or budget spikes – represent significant cash outlays. This makes the IT purchasing decision a major decision.  The end result is that technology budgets become unwieldy at best and unpredictable at worst. Treating the purchase of IT assets as a capital expenditure sets the stage for reactive short-term planning rather than strategically focused long-term planning.

Alternative Funding

Interest in leasing has grown as law firms explore alternative sources of capital.  Many firms are exploring leasing as a complement to existing finance sources. About 80% of businesses in the United States utilize equipment leasing or financing to fund their operations, according to the Equipment Leasing and Finance Association (ELFA).

What does leasing entail?

A technology lease program is an operating lease. A technology lease is not like traditional bank financing, nor does it bear any implication on the financial condition of your firm or your availability of capital. In a technology lease program, your firm rents (rather than owns) its IT equipment. As the equipment ages, your firm returns the old equipment and gets new equipment.

The monthly lease expense is an operating expense. This expense comes out of your firm’s operating budget, just as any other monthly utility expense.

And lastly, in the lease-based technology refresh program, the refresh cycle is written directly into the structure of the lease. As a result, your firm regularly and predictably receives new, updated IT systems and devices. Essentially, the lease codifies your firm’s commitment to maintaining high standards of technology.

Get Started

To start reaping the benefits of a technology lease program, the first step is to decide which technology and IT equipment at your firm can be treated as a refreshable commodity and which are better suited for ownership. From there, the next step is to consider how frequently your firm will want to renew these assets. And finally, you are ready to start looking at the lease options available to your firm.  First American Legal Finance, a City National Bank Company, stands ready to assist you with your lease evaluation.

About First American Legal Finance

First American Legal Finance is the leasing subsidiary of City National Bank.  The company provides lease-financing and asset management services to help law firms acquire leading edge technology and office equipment.  First American finances complete projects, combining multiple vendors or service providers of hardware, software and services, into a single lease.  Based in Rochester, New York, First American works with law firms throughout the U.S., and has a long-standing reputation for professionalism and exceptional customer service.

For more information about First American, visit the company’s website at falegalfinance.com.

About City National Bank

City National Bank is the wholly owned subsidiary of City National Corporation (NYSE: CYN). It is backed by $24 billion in total assets, and provides banking, investment and trust services through 79 offices, including 16 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. The company and its investment affiliates today manage or administer $57.8 billion in client investment assets, including $32.5 billion under direct management.

For more information about City National, visit the company’s website at cnb.com.

Download this article in PDF format:  www.afinety.com/zine/IT-Leasing-Law-Firms.pdf.