> At another employer, I managed teams of salespeople who generated subscription revenue for the organisation. My role was simple enough when you zoomed out: manage a budget that pays staff and logistics to bring in enough subscription income to cover the budget spent 3-5 times over. We hoped to bring in €3-5 for every €1 we spent. As a fleet of vehicles we used was approaching the end of a lease-hire agreement, we had the option of buying them out for a lump sum worth about 5 month’s worth of lease – let’s say €3k each or, getting a new fleet for another 3-year contract at €600/each per month. As someone whose responsibility it was to own a profit and loss account, I was happy to get maybe four or five years of use from the fleet at a vastly reduced cost as all we would have to do was fuel and maintain them. The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper. This theoretical drawback was seen as more important than the real-life cost-effectiveness of being able to win revenue for the organisation with this logistical cost stripped out. Compared with €600 per month, 10% of the value being lost off each car each year would only have amounted to €300 anyway! This means we paid 24x more just to be able to say we didn’t own the vehicles. An academic concept from the accountancy scriptures won the day against real-life cash flow. But accountancy always knows best when it comes to anything to do with money, right?
Depreciation for a car is obviously not imaginary. They have a specific resale value based on how much they've been used and they break down and need maintenance. Whether the old cars were purchased or the new cars were leased the business was presumably going to sell the same amount of product, so the only difference was whether or not the purchase or the lease made the company technically come out ahead... and when the accountants factored in the fact that the cars break down it allegedly wasn't a good deal. What am I missing here?