Page 32 - demo

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?

here are many important One big reason
considerations when making such many construction
Ta strategic decision. companies choose to

There are pros and cons to both renting rent is because there is
and buying construction equipment. a predictable monthly
expense with a rental.
Here is a list of things to consider when The pre-determined
making that important decision. monthly line item can

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

www.ghmediabusiness.com
| Global MDA Journal | NOV-DEC 2017