In this guest blog from our friends at First American Legal Finance, Karen Leastman and Christina Floyd, provide an overview of software leasing and five ways in which it can help law firms grow.
Software is not a one-time-use investment for law firms. From case and customer relationship management, to time and billing, law firms rely on powerful, specialized systems every day to operate efficiently and competitively.
Why then, should software be a one-time expense? The cost for software licenses can easily climb to six figures, frequently running as much or more than the cost of office rent, vehicle leases, and even the equipment on which firms run the software (which they often finance, incidentally.)
However, unlike office space, cars, and computers, software inhabits a virtual world. There is nothing physical to represent the investment. Perhaps this intangibility is why many law firms may not typically consider leasing or financing software.
But the physical and virtual domains are merging – in business and the world at large, and software assets can be just as “real” and valuable as physical ones. Firms may already be aware that when purchasing new equipment multiple finance options are available to manage the investment. What many firms do not realize is that these finance options also exist for software investments – and that financing software can yield significant benefits for the firm.
How Software Leasing Works for Law Firms
Software leases are similar to leases for equipment or property. Law firms make regular payments over a fixed term to a lessor, in exchange for the use of a software license.
Typically, software leases take one of two forms:
- In a capital lease, the software is booked as an asset and subject to depreciation as if the lessee paid cash. Payments on a capital lease are fixed, and at the end of the lease term the lessee will have the right of use of the software with no further obligation to the lessor.
- In a tax lease, the lease payments are booked as operating expenses, which can be written off for taxes. Because these payments do not necessarily lead to outright ownership, payments on a tax lease tend to be lower. At the end of the lease period, the firm can either pay the remaining balance to purchase the software (based on a pre-determined total cost) or continue leasing.
Reviewing and understanding the implications of each of these structures is important for a law firm to choose the best arrangement that suits their financial objectives.
How Law Firms Can Benefit from Leasing Software
Software leases can be advantageous for multiple reasons, including:
1. To Spread Payments Over Time
A firm’s employees will realize the benefits of the software system for years to come, so why should the equity partners shoulder 100 percent of the costs today? Leasing provides a fixed-rate financing arrangement where the cost of the system can be aligned with use.
2. To Preserve Cash Flow
Most law firms recognize the value of a strong cash position. Cash-on-hand is a bulwark against unpredictable markets and a resource firms can call upon to fund rapid expansion.
By leasing expensive software, firms can hold on to more of their cash, investing it in higher-value projects or maximizing their partner distributions.
3. To Minimize Bank Credit Exposure
A healthy line of credit is almost as valuable to law firms as cash-on-hand. Leasing allows firms to preserve their lines of credit while paying low fixed rates for their software.
4. To Pay for Entire Projects
Complex software implementation projects can involve multiple vendors and asset types and substantial upfront costs. As a result, firms often delay these projects until they can afford them – missing opportunities to profit from the new software in the meantime.
Bundling all the costs of a software project into a lease – including hardware upgrades, implementation services, installation and training – allows firms to do more and grow faster.
5. To Keep Software Up to Date
The speed of software development is lightning fast; this year’s software may be obsolete next year. But while the latest software can give firms powerful new capabilities, they may also loathe the idea of spending thousands for a new version of software they already own.
By leasing, firms can be sure they have the latest software without the staggering up-front costs. They can make predictable low payments on the software, and when it is time to renew, they can easily update to the latest and greatest version.
Software Is a Strategic Asset
Some law firms make the mistake of thinking of their software as just another expense. But software is a critical investment that can increase a firm’s profitability by boosting its efficiency and extending the capabilities of its legal professionals. By financing this cost, law firms can make the most of their strategic investment.
While many banks have yet to embrace financing intangible assets, equipment leasing firms like First American Legal Finance are active in this space. They offer software leasing arrangements to fit the needs of their legal customers. To learn more about software leasing for law firms, please visit First American Equipment Finance at https://www.falegalfinance.com/Solutions/Software-Financing.
About the Authors
Christina Floyd (firstname.lastname@example.org) is a Certified Lease and Finance Professional (CLFP), and has almost a decade of equipment leasing knowledge and dedicated experience working with the legal industry. Christina holds a Bachelor’s degree in Communications from St. John Fisher College and an MBA from St. John Fisher College. Additionally, Christina has successfully completed the Legal Management Finance Specialist Certificate Program through the ALA. In her tenure, Christina has been instrumental in growing First American’s Legal Business to over 200 firms. In her free time, Christina participates in her community as a volunteer for the Al Sigl Center, and a fundraiser for Habitat for Humanity and Big Brothers Big Sisters of Greater Rochester. Taking advantage of New York winters, Christina enjoys snowmobiling and skiing. She resides in Rochester with her husband and two children.
Karen Leastman (email@example.com) has over a decade of equipment leasing knowledge and dedicated experience working with the law firm industry. Karen holds a Bachelor of Science degree in Business Administration & Finance and a minor in Violin Performance from Roberts Wesleyan College. Since joining First American in 2003, Karen has been a key contributor in building First American’s law firm division which now serves over 200 law firms across the United States, including AMLAW 100 and 200 firms. As a Certified Lease and Finance Professional (CLFP), Karen is a leader in the equipment leasing industry. Outside the office, Karen is an active participant in both her church and local community where she plays the violin for local community groups and coaches community sports teams for her children. Karen also spends time volunteering and raising funds for local charities including Women Build Habitat for Humanity and Big Brothers Big Sisters of Greater Rochester. She resides in a suburb of Rochester, New York with her husband and three children.