Case provides advice on the rental versus acquisition decision in the construction industry.
The decision to rent or purchase attachments and other ancillary equipment shares many of the same financial considerations, and there are several factors that help a business owner determine whether it makes more sense to rent or purchase attachments. There is no right answer that will work for every business owner. Each individual should look at factors such as cash flow, taxes, estimated utilization rates, as well as associated costs like maintenance, depreciation and resale values. Additional factors include the size of the operation and the types of jobs and applications in which the attachment will be used.
If an attachment is only used for a specific task for a one-time-only job, it makes more sense to rent. But if an attachment can be utilized on multiple jobsites, expand the services a company is able to offer and be profitable throughout the growth of the business — or even replace an entire other machine — then purchasing/financing the attachment makes sense. It ultimately depends on a contractor’s cash flow, the size of the business and long-term strategic growth plans.
There are a variety of benefits to renting attachments. Renting allows business owners to pass the rental costs on to the job and places owning and operating costs in the hands of the dealer or rental house. Renting also limits long-term storage and transportation costs. Another advantage is that rental houses often have the latest attachments available to rent, so it can be a good way for contractors to try out the latest attachments before making a purchase decision.
However, rental agreements often have hour caps, and the payments are considerably higher than a finance payment. Business owners should also be aware of competitive rental rates within their region of operation to ensure they’re getting the best deal.
Purchasing an attachment can offer a variety of advantages. Ownership typically offers the highest degree of flexibility—the owner is ultimately in control of all aspects of total cost of ownership (TCO). The owner/fleet manager will be in charge of maintaining the attachment to ensure maximum uptime and resale value. Another benefit of purchasing attachments is that operators become more familiar with them over time, which can improve productivity. The monthly payments will be lower than rental payments. Business owners can also talk with their dealers about deferred payments, skip payments, package deals or rent-to-own plans that best optimize new purchases with peak cash flow and seasonal work.
Rental is a good option for short-term projects. In a situation where a contractor sees a long-term benefit to a piece of rental equipment, they can discuss rent-to-own options with their dealer. Business owners should apply the 80/20 rule: If an attachment will be used 80 percent of the time in their core business, it should be purchased. If not, it should be rented. Rental is a good option for businesses looking to fill short-term equipment needs without the added worry of ownership costs—maintenance, storage, etc.—which are all carried by the dealer/rental house in a rental situation. Source