JUNE-JULY 2018 Nov-Dec 2017 - Copy - Page 32

ARTICLE CONSTRUCTION EQUIPMENT: The Economics of Buying vs Renting It’s one of the most impactful financial decisions for all construction companies, regardless whether you’re a small, medium, or large company. Do you rent or buy the required construction equipment? T here are many important considerations when making such a strategic decision. There are pros and cons to both renting and buying construction equipment. Here is a list of things to consider when making that important decision. Renting: The Benefits Renting keeps equipment up-to-date: A current model will have the latest features and the newest technologies, enabling greater productivity, safety, and ultimately a better bottom line. Also, consider the project length or the frequency of jobs on the calendar. With a short-term job, or a need for a specialized piece of equipment, renting makes more sense, since the piece of equipment is only needed for a short period of time. Few contractors or businesses will have equipment that is utilized 100% of the time. In order to predict the rate of utilization, a common industry calculation is to divide the days utilized in a month by 22 days. (An alternative metric for added accuracy is hours utilized divided by 176 hours) 32 For example, a piece of equipment that is utilized for 10 days in a month has a utilization rate of 45% (10/22 = 45%). A useful metric amongst industry insiders, companies should only think about purchasing equipment if they expect utilization to be above 60%. Alternatively, if the equipment has a utilization of less than 40%, renting becomes the preferable acquisition method. From 60%-40%, other factors such as available capital and job frequency become the primary decision factors. One big reason many construction companies choose to rent is because there is a predictable monthly expense with a rental. The pre-determined monthly line item can help with budgeting. Another factor to consider is the transportation costs of that equipment. Costs to move equipment sometimes hundreds of miles between jobs add up quickly. Depending on the location of the job, renting can save on excess costs. In some cases, renting can lead to more accurate job quotes. This is because the cost of renting goes directly into how much each job costs the company to perform. Finally, renting is a good option because then companies don’t need to store construction equipment. Paying for storage space costs considerable money. Also, in the long run, buying can often be more cost effective. Buying may be a larger one-time financial outlay, but contractors can see a return on your investment when they sell. Construction companies also need to consider the impact of managing the equipment. In some cases, buying the equipment can save money since contractors can take care of maintenance in house. On the flip side, working on a long project, or if several jobs are on the horizon, buying is better since rental costs add up the longer a job goes on. Perhaps one of the biggest advantages of buying is the fact that equipment is available anytime a construction company needs it. Construction companies can react to unexpected changes in projects or project schedules, take on jobs at a moment’s notice, and complete projects with less downtime. Another benefit is having a multi- purpose piece of equipment can be used for various projects, which is a great asset on any jobsite. Finally, buying equipment is deductible. When doing company expenses and taxes, the equipment owned can be deducted. Buying: The Benefits www.ghmediabusiness.com