Use these guidelines the next time you acquire construction equipment and feel confident in your decision.
Determining whether to purchase a new piece of construction equipment is a decision that should be considered carefully, and the overall bottom line must be taken into consideration. Let's look at factors to weigh when deciding whether to buy or rent new equipment.
Analyze Your Construction Equipment Needs
In the construction industry, a general rule of thumb is that if you don't use a piece of equipment more than 60 to 70 percent of the time, you should consider renting. However, if your operation rate exceeds that threshold, consider purchasing or leasing the equipment. Take the long view and think of future needs-if renting a machine costs as much or more than owning it, then it's time to buy.
Another consideration that weighs in favor of the purchase option is whether there are significant cost consequences if you don't have the right equipment immediately available. For example, would your service trucks be unable to perform a field repair without welding or generator power, thus idling a critical piece of equipment and disrupting the job schedule? How versatile is the piece of equipment? If the machine is used throughout your company on numerous types of jobs, odds are it makes sense to buy.
Conversely, working with an up-to-date rental house or distributor allows you to gain experience with new equipment and make head-to-head comparisons before purchase. Upgrading to new technology might enable you to bid a job more competitively (such as increasing productivity, reducing fuel costs, improving quality, etc.). Renting offers a cost-effective way to test it and calculate payback and jobsite efficiencies that will make it easier to justify an equipment purchase.
If the value of the equipment rental compared to the total project is low, then the "lost" profits due to renting are almost immaterial. Conversely, if the equipment costs comprise a large portion of the job's budget, then a contractor who owns his or her equipment operates at a competitive advantage.
Consider Tax Incentives/Capital Expenditures
There are also financial and bookkeeping factors to consider. Rental expenses can be billed back to the customer or deducted annually as a business expense. Buying a piece of equipment, however, is a capital expense that must be treated as such at tax time. You can't deduct the purchased equipment's entire expense during the year in which it was purchased. The capital costs are then amortized or depreciated over the useful life of the piece of equipment.
Examine Interest Rates
Equipment manufacturers and dealers are working to provide business owners with low financing to make it more attractive to buy equipment. Many dealers/manufacturers are even offering zero percent financing over specific time periods and on purchases of certain sizes.
Factor in Depreciation/Resale Value
If you make the decision to purchase a piece of equipment, do your research comparing different brands and models. Certain machines hold their value much better than other machines in the same product category and will be worth more when you sell it later. Especially if you like to cycle in new equipment over a set time period, selecting the right machine based on annual depreciation and performance might be the financial difference in the rent/buy decision. Similarly, used equipment available on the market is typically of a higher quality than it was in the past, especially with dealers and manufacturers offering certified used equipment.
Weigh Transportation Costs
When considering financial decisions, many contractors overlook the total cost of equipment management. For example, if you're based in Chicago and successfully bid on a job in St. Louis, you have to think about the cost of transporting equipment 300 miles. The costs of the truck, the driver, loading and unloading time and diesel fuel should be included. Once on the jobsite, you'll need to hire someone to maintain and fuel the equipment. Take into account
