Contractors Hot Line is part of the Catalyst Communications Network publication family.
Contractors Hot Line is part of the Catalyst Communications Network publication family.
Whether you need a new machine or to replace an existing machine, you have two options to acquire it — purchase or rent. When making this decision, there are numerous factors one should consider. Below are seven tips to help contractors decide whether purchase or rental is their best decision.
1. Availability
Dealership inventory levels are low. Supply chain issues have lengthened manufacturing and therefore delivery times. You may need to wait 6-12 months if they don’t have the size machine you want. In this case, equipment rental would be the obvious choice.
On the flip side, rental companies keep a very limited inventory of niche machines. If you need a lift, skid-steer loader or excavator (up to 25 tons), you can probably find one nearby for the time you need it. Outside of those machine types, you may need to drive extra miles to work with a rental company located farther away.
2. Utilization
How long do you need the machine? If you need it for only a few weeks or months, and don’t expect to use it beyond the one project — rent it. Likewise, if your work pipeline is shrinking, rent.
However, if you can foresee getting significant machine utilization for the entire term of the financing period, purchasing is probably the better option. Sometimes, the addition of a new machine can lead to offering new services, and this can lead to getting projects that the company wouldn’t have without it.
3. Cash Flow
The next thing you need to consider is cash flow. When you purchase, you’re committed to financing a machine (generally for four to seven years). This can restrict your company’s ability to financially invest in something else during the financing period. However, you also have the option of purchasing a used machine, which can decrease the financial impact of the purchase.
When you rent, you generally pay a little more per month than buying a new machine, but you pay only for the time you use it. This option provides greater financial flexibility.
4. Market Forecast
Certain market data may influence your decision, especially when the market is in transition. If you’re unsure about the market in the short term, renting is the safer option. However, if you’re confident in the market, maybe purchasing the machine is the better option.
5. Service
All equipment needs to be maintained. How do you service your equipment? If you purchase a machine, your company may be responsible for its maintenance. Many dealerships offer service packages on the equipment they sell, so investigate their turnaround times and customer satisfaction rating.
If you don’t have a dealership service agreement and perform equipment maintenance work in-house, consider whether your company has the capacity to service this machine. Are your technicians familiar with the type and manufacturer? How easy is it to get replacement parts? How long does it take to get them? You should be able to get the most common parts for your machine within 48 hours. If parts take more than a week, either your machine downtime is significantly increased or you have to stock the parts.
Additionally, if you have a backlog of required equipment maintenance, purchasing a new machine will only exacerbate that problem. If you rent a machine and it breaks down, the rental company will bring you a new one and repair the broken one. This can alleviate equipment maintenance timelines and budgets.
6. Storage and Transportation
If you own a machine, you need to store it when it’s not in use. You also have to transport it from one job site to the next. If you rent, the time and costs associated with these activities are decreased.
7. Cost
The cost of purchasing a new machine obviously costs more than renting one for a single project. However, there’s a calculation you can make to simplify the comparison. Take the cost of the machine and add the expected maintenance, transportation, storage and insurance costs for the life of the machine, subtract the expected resale value, and then divide that number by the machine’s utilization. (How many hours or days do you expect to use it?)
By using this formula, you can deduce either a daily or weekly cost of machine ownership, which you can directly compare to the daily or weekly rental rates of the desired rental equipment.