For many businesses that are heavily dependent on computer technology, deciding whether to build an in-house IT team or sign an agreement with a managed service provider is an important decision. There are pros and cons of both options which need to be properly weighed to come to the correct decision for your organization. Questions such as, “Are managed services cheaper than in-house IT?” or “Are there tax advantages to retaining a managed services provider?” are particularly relevant. In this post, we’ll try to sort out the reasons for and against a managed service provider.
The real answer to this question is, “It depends.” It will depend on the size of your business, its computing needs and the expertise required to manage the computing systems. On one hand, a business with fewer than 10 employees might be able to manage its IT needs in-house. It may only take one person with some specialized computer knowledge to ensure that the network remains up, running and secure. If there are more technical problems it may be financially feasible to hire an expert for the short term to correct the situation. If you’re running a business with significantly more employees, rely heavily on complex computing systems or often run into security or capacity problems, hiring a managed service provider may be cheaper than maintaining a full in-house IT team. Your situation will dictate which scenario will cost you more.
If you look at it strictly from a tax advantage point of view, retaining a managed service provider may benefit your organization financially. Investing money in hardware and software is considered a capital expenditure. Capital expenditures are subject to depreciation which means the amount of money you can claim as a tax deduction decreases every year. Contracting a managed service provider, on the other hand, is considered an operational expense. Operational expenses are not subject to depreciation which means you’ll be able to deduct the full cost of the service from your annual earnings meaning you’d likely pay fewer taxes over time. If you’re keen to reduce your tax bill, using a managed service provider may be cheaper in the long run.
Again, the answer to this question will be specific to your situation. If you have a few computers in your office that get used for some casual emails and spreadsheet calculations, it may not be a business-ending scenario if your internet goes down for a few hours or even a full day or two. However, if your business vitally depends on full-time connectivity, you need to ensure the system is vigilantly monitored 24/7, 365 days a year. This may be almost impossible if you have a one or two-person in-house IT team. You have to assume the possibility of sick days, vacations, weekends, after hours and staff turnover. A small IT team may not be enough to ensure your systems are always running. If downtime is lethal for your company, you need to ensure you have the support to stop that from happening. And sometimes a managed service provider is the best option. Rather than fixing problems, managed service providers work to ensure problems do not occur in the first place. If even the smallest bit of downtime will damage your business, paying a premium for the full-time support of a managed service provider may be cheaper in the long run.
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