Should you rent or buy your equipment?
In the construction game, you have to be smart about how you use your capital.
In order to be able to complete the major projects you’ll need to have the right equipment, capabilities and money available as and when necessary.
Many business owners in the construction game know that as they grow, and the projects become bigger, they’ll need to invest in some heavy equipment and transport solutions.
If this sounds familiar to you then you’ll know that you have the option to buy or to rent the equipment you need.
Find out how each option can benefit you
You need to weigh up the pros and cons associated with both buying and renting the construction equipment you might need. You need to evaluate what could be considered an asset that might make you money in the future and what you don’t use often enough to warrant a hefty outlay of capital.
The initial costs of purchasing equipment can be debilitating. But choosing to rent the equipment means you could suffer through the lack of availability of what you need. This might make your project run late and cost you more money, time and resources.
Check your profit margins
Of course, you naturally need to look at your finances first and foremost. If your business has been expanding rapidly and your profit margins are increasing, then purchasing a new truck is probably a great idea. But do you purchase one with an aerial work platform? How often do you actually complete projects that require that specific vehicle? If the answer is “more often than not” then you should definitely consider buying this particular vehicle because renting can add up quickly, eating into your profits. Conversely, if you don’t use it often then don’t waste money on buying it.
Breaking down the cost of renting
If you decide that renting the equipment you need is the route you want to go then you must understand the financial implications. This will be a monthly cost to the company so you need to take a projected view on how much you’re actually going to fork out. The cost of renting construction equipment over many months can end up being a greater expense than purchasing it.
Find out if buying can benefit you in the future
If you decide to purchase the equipment you could turn a profit on it at a later stage. By owning the equipment you’ll reap the resale reward and can use that money to upgrade to an improved version. And, many construction company owners will begin renting out their equipment to their counterparts who need it.This provides you with additional profit coming in each month. You can also look at purchasing high-quality used equipment which will be cheaper. If necessary you can finance your equipment purchases which allow you to keep your capital free and fluid.
Unpack any additional hidden costs
No matter whether you own your equipment or are renting it, there are additional cost implications involved over and above the cost of simply having the machinery. Fuel, maintenance, licensing fees, and insurance must be considered. Often times renting is an inclusive cost that covers everything but the rental company needs to make a profit too so you could end up paying quite a bit. However, because the equipment is used for your business activities you may be able to write the cost off in your tax year. It’d be a smart idea to consult with your financial advisor or business accountant about this.
Ultimately, you will know what’s best for your business if you research your options and see how they correlate to your cash flow and have upcoming projects on the horizon. If you’re moving into the market of large commercial projects then you must account for the monthly costs of the equipment over a long period of time. And consider equipment that is multi-purpose that can do many jobs on many different projects.