Rent or purchase? What's right?
It is always a tough decision whether to lay out the money for a new machine or rent. The answer as with most things is it depends. Many times a rental is the best way to go and other times it simply isn’t cost effective. Here are some thoughts when you come across this dilemma.
We deal with a myriad of different job sites – golf courses, general landscaping, compost, mulch, trash, and recycling sites. We offer a lot of different normally require a range of equipment for storing, filtering, digging, lifting, trenching, loading, and excavating. The decision to rent or to buy material handling equipment will make a huge difference in customers’ operations, project management, labor, and the budget.
The choice may vary from one company to the next. But the factors that mainly drive the cost vs. benefit analysis are:
- Urgency – how soon your project needs the equipment
- Availability of expertise and resources to manage the inventory and fleet
- Types of material processing tools, accessories, and equipment
- Cost of buying vs. renting
- Your project budget
- Duration for which the owned or rented equipment will be used
Material handling operations need a range of equipment that can either be rented or purchased. This includes shredders, mini-excavators, dumpers, screeners, separators, forklifts or telehandlers boom lifts, crushers, truck liners, earthmoving, and compaction equipment. No matter big or small, customers cannot afford to let their equipment sit idle or be mismatched for the work. It makes sense to do a cost-benefit analysis beforehand.
A comprehensive analysis is essential to making the right decision. Here are some factors to consider:
- The cost of new equipment vs. your budget. New equipment is always considerably more expensive. Compare this with the expenses that you will incur in renting the equipment.
- The estimated cost of operation and maintenance of the machine over its lifetime.
- The duration for which the equipment is needed. Will it be needed for just one or multiple projects?
- The labor and fuel costs will be saved with each option.
- The in-house capability to test, service, and maintain the equipment.
- The cost of transporting and storing the equipment.
In general, you should buy the equipment if you need it for more than 60-70% of the duration of the project(s). To assess this, you can either use a material processing/project management software such as FinalCAD or BuildSmart or even a simple spreadsheet. Other factors to consider when buying the equipment are:
Availability of the equipment – Dealership companies work with multiple customers. There is a chance that the equipment may not be available with the rental company when you need it. If your project is a high priority and cannot afford to wait, consider buying the equipment. With your equipment available 24/7, you are ready at all times to handle emergencies and last-minute jobs.
Cost of financing and depreciation vs. rental – Equipment manufacturers often come up with financing schemes at attractive interest rates to help you buy the equipment. Just like an automobile, equipment starts losing its resale value on the day it arrives at your facility. Do an analysis of the expenses in financing vs. renting lifecycles.
Purchase used equipment – You needn’t purchase new equipment every time. Rental companies also offer used equipment for sale that you can get at very attractive prices.
When to Rent Construction Equipment
Companies choose to rent construction equipment over buying them for different reasons.
Larger companies can increase or decrease their fleet as needed. Small- to mid-size companies can rent specialized equipment at considerably lower costs. But there are many other benefits when you go with a rental.
Save the up-front investment – Heavy equipment such as earthmovers and excavators can take up a lot of investment that will remain stuck until you sell it. And when you sell, you may not get the price that you anticipated. Renting the equipment can save you from this hassle.
Avoid operational expense – If you buy the equipment, you will need a good reliable 24/7 service partner to machine regularly. Parts, hydraulics, and fluids must be changed, and technology upgrades. With renting, all this can be taken care of by the rental service provider.
Free up the cost of storage and transportation – With a rental, you can let the dealership deliver and pick up the equipment on demand. You don’t need to construct large storage spaces for times when equipment is not needed.
Tax benefits – Rental payments are recurring expenses that can be more beneficial than the upfront cost of purchase, which is calculated as a depreciating asset over time. You may also get some tax benefits with rental depending upon the nature of your business.
Maintain strong balance sheets – If you wish to take loans, remember that banks do not consider the cost of rental equipment as a liability. On the other hand, the machines that you own will be considered as a capital-equipment debt in the books. With equipment rental, you can maintain a healthy borrowing power.
Environmental and legal compliances – No company wants to be caught during a compliance issue that they forgot to handle. With a rental, all the compliance-related issues will be taken care of by the dealership, leaving you free to focus on your core business.
Reduce the waiting time – As a recycling or processing company, you don’t want to keep your labor idle while the equipment arrives or remains stalled on-site. Be it an aggregate screener or wood shredder, you can rent the equipment with a quick turnaround time and on-demand. This saves your time, and money, and helps you meet the project targets.
Renting opens up new opportunities – Choosing to rent opens up your business for projects that are beyond regular construction. You cannot purchase all the equipment possible, but you can certainly rent them if you are foraging in agriculture, road construction, or any other specialized project.
Maintain market competitiveness – Even if you are a small company, you can get projects because you have access to all the equipment that a big company owns. This gives you a competitive edge when you negotiate for a new project.
Try the product before buying – If you want to purchase a piece of equipment but aren’t sure about it, you can rent and test it before buying.
Lastly, remember that pricing is not everything in construction and material handling equipment. We recommend that you speak to various rental providers such as Sound Heavy Machinery – consider the range of equipment we have and the turnaround time. Also look into their existing clients, service quality assurance, the expertise of their support staff, and their market reputation.
Considering all the above points should help you make an informed purchase or rental decision.
Mark Thomas is Director of Marketing for Sound Heavy Machinery and brings a wealth of heavy equipment, material processing, and business experience.