Loaders, excavators, skid steers, trucks, lifts, generators, uninterruptible power supplies and other equipment are essential to any business. But like any other department or resource, they can and must be streamlined for maximum efficiency and versatility. A cost-benefit analysis can provide valuable data to help you make an informed decision about equipment rental versus ownership.
Regardless of how business and companies differ in their size, purposes and structure, few that use any size of equipment can afford to have it be ill- matched for the task or sit idle and unused. Procurement, finance, production and administration departments all might have input on which option to use, since all have important perspectives to present. Maybe you head all those departments for your company or maybe there are different people in charge of each one, but you’re likely to pull statistics from all for a good analysis.
Holt of California offers a comprehensive inventory of equipment for purchase and rent, so we can help you decide which option best suits your business needs, whether they be rental, ownership or a mix of both. As a strong Cat™ dealer serving many industries from multiple locations, we sell new and used equipment and have Cat construction equipment for rent. Along with the excellence of Cat, Holt of California also carries many other allied brands.
TAKE TIME FOR AN EXAMINATION
It helps to first take a step back and analyze the cost-benefit situation as applicable to your business. An educated, logical decision will result as you consider all the factors:
- Estimated rental payments for the period of use and machines needed
- Approximate cost of a new machine
- Transportation and storage expenses
- Frequency of need for equipment
- Projected life span of new machine
- Estimated cost of maintenance and service over its life
- Rough amount of labor saved with either option
- Financing options and available capital
- Need for special technology or skills with projects or equipment
- Availability of desired new-purchase equipment
- Possible, multiple uses for machines both rented or bought
- Internal capability to test, maintain and service machines.
A cost-benefit analysis will result in a much stronger sense of which option fits best, as well as where and why. The most often recommended numeric benchmark for when it’s time to cross over from rental to purchase is when the equipment is needed and used at least 60-70 percent of the time. Generally speaking, if you’re thinking about need for the equipment in terms of years, that can be an indicator that you’re moving toward purchase, unless of course you’ll have little or no use for the machine after the current project or set of jobs.
Your examination of equipment needs will naturally reveal data that are useful to decision making, things such as usage duration, hours wasted or saved, profit or loss potential and capital or financing available now or in the future. Businesses can use some type of construction-management software to track vital job statistics and provide useful information such as trends or previously unknown needs.
Beyond the hard numbers sit a good deal of other considerations, such as safety, quality, efficiency, compliance, growth, risk, morale, employee retention and other factors that affect business but don’t have a hard number attached to them. Individual companies will each value the softer factors differently, but they are all worth considering.
WHO RENTS AND WHY?
Many industries can benefit from renting equipment rather than buying it:
- Earth moving
Companies and people rent equipment for a number of reasons:
1. Saves money in many cases
2. Caters to short-term equipment need
3. Provides specialty performance
4. Satisfies temporary production increases
5. Fills in when regular machines need maintenance or fail
6. Helps meet deadline crunches
7. Expands machine inventory
8. Increases overall capability when and where needed
9. Eliminates responsibility of testing, maintenance, service
10. Makes the project schedule easier to manage with on-demand resources.
The rental of equipment can enable a bigger company to augment its fleet when and where needed, while it can aid a small- or medium-sized company to propose work that requires specialty equipment or machines to fulfill the requirements. The range of capabilities among equipment of all sizes can help businesses serve niche markets and win new and different kinds of projects.
Rental options can fill in during an outage or emergency and provide a flexibility that extends to logistics and finance, at a minimum. In addition, competition among rental providers can work to the consumer’s advantage with prices, specials and service. Equipment rental appeals to many industries because of its many benefits and advantages.
1. Forgo the Upfront Investment
Equipment, especially large equipment such as an excavator, tracked dozer or a telehandler, is an expensive capital cost that must be planned and might require a “good year” (or a couple) to come about. When you purchase a piece of capital equipment, your money is tied up in it until you sell it, and if you used it well and kept it long, sale offers might come in lower than you’d like. Not having a large chunk of money tied up in a piece of capital equipment frees up funds for you to pursue opportunity and maintain other important parts of the business.
2. Decrease Long-run Expense
In many cases, companies have maintenance teams or equipment consultants devoted to upkeep and regular service of the machines, which is necessary for fault-free operation. Mechanics must check fluids and hydraulics, service must happen regularly, parts must be changed, technology needs upgrading, sometimes leaks happen and the scheduling for usage and transport represents challenges. You can gauge rental fees, while the expense of maintenance and service in private ownership typically tends to be less predictable.
3. Avoid Storage, Transport Costs
Anyone who decides to purchase a new piece of equipment will need a short- and long-term storage solution for it. Nobody wants to leave a vital piece of new equipment sitting out in the blazing sun, driving rain or blustery wind. Continuous exposure to the elements and a poorly ventilated storage space will degrade machine quality. Everyone realizes that space is expensive no matter where you live or what purpose it will serve, and equipment rental eliminates the need for long-term storage.
Rental can save you from the worry over logistics in transporting equipment from site to site, since you can simply have the rental equipment delivered and picked up when needed. It can help you respond faster to varied needs in different locations. The coordination of placing the right piece of equipment in the right place and for the right amount of time can streamline operations, shorten the workday and save money. However, organizing that kind of precision can be exhausting and detract from a company’s true business, so the frazzled project managers and owners might see a higher value in renting equipment.
4. Save at Tax Time
While many circumstances apply to an individual business’ tax return, rental expenses are a deductible expense while purchased equipment is taxed at a depreciated rate over its lifetime. Generally, rental expenses are a little more financially flexible than are major, capital-expense purchases. In some cases, they’re viewed as project expenses or might have some type of tax-deduction benefit available because of the nature of certain kinds of business.
5. Maintain Strong Borrowing Power
In the same way the Internal Revenue Service looks at rented equipment one way and owned equipment another way, so do banks. They do not see rental expenses as a liability on the balance sheet, so the option to rent equipment maintains stronger borrowing power for a business. Thinking in terms of assets and liabilities, capital-equipment debt or an aging machine could weaken a business’ overall financial picture depending on the numbers and circumstances involved.
6. Achieve worry-free compliance
Especially in California where many would argue the emissions standards are the most stringent in the nation, compliance with air-quality standards is a must and navigating the regulations can be a complex and confounding experience. No companies can afford the financial ding or loss of reputation associated with violating the standards since that can be troublesome and expensive, if not damaging.
Air-quality gatekeepers in the Golden State classify the emissions of off-road equipment into three tiers, according to their horsepower and other factors of their overall consumption. As the historic push-pull of progress and conservation continues, the laws and regulations continue to change, and it’s hard to stay abreast of what the differences are and how they apply to your business.
Choosing Cat construction equipment rental can relieve you of the chore of tracking the sporadic regulations changes and provides automatic, consistent compliance. Since no company would want the status of its compliance called into question, there is great value in having confidence that equipment meets emissions and other safety standards.
7. Reduce Waiting and its Associated Losses
Most owners and managers would agree that lost time at the job site eats into profit and deadline compliance, so it’s never good to have people waiting around on a piece of equipment to arrive or for it to be sitting idle because it stalled. When you have a rental agreement, it’s on-demand delivery and pickup for the exact time frame you need. If you need a backhoe with a precision arm for a week, you can get it. If you need an earthmover for a month, you can get that. It can arrive when you start and leave when you finish. In addition, since professionals maintain and service the equipment, it is less likely to fail and waste job hours while an alternative is found and transported.
8. Track New Opportunities
Equipment rental can do just as much to increase business opportunity as it does to reduce operating expense. Once you factor in the possibility of renting a piece of specialty equipment, it opens the door to new possibilities through that capability. Maybe the job entails digging or grading or a certain kind of precision dirt work that you could capture if you had the right machine, and the same principle translates universally across industries. Whether you’re chasing road-construction projects or trying to harvest crops more efficiently, there are rental options that can cater to nearly any need.
9. Sharpen Your Competitive Edge
Many businesses bemoan the fact that it’s hard to compete against the big companies that have the nicest, newest, best machines while they, in comparison, make it work with older ones. Equipment rental can shift that age-old characteristic so that small competitors can procure the same type of equipment for jobs, if that’s what will win the work. If a client asks what machines you will use or about a key piece of equipment, you can rest assured knowing that you have access to a diverse, efficient and compliant fleet of machines, just like the bigger companies.
10. Avoid Long-term Commitment
The thought of a major, capital-equipment purchase can cause a little anxiety on the part of some business owners. Most new or used machines cost a lot of money and must be kept busy throughout their practical life, hopefully not being misused or abused. There are warranties to track, service-contract decisions to make, financing options to discern along with interest rates and several other points that make the prospect of buying one seem like too much long-term responsibility. Capital equipment is great to have on hand and at your disposal anytime, but it comes with the duties of maintenance, service, eventual sale or disposal, upgrades and adherence to regulation for all the years that you plan to own it. For business owners who have any apprehension about the longer-term obligations, renting equipment can be a great solution.
11. Eliminate Coordination Headaches
Rental provides a win-win cycle for business because experts maintain and service the equipment so it is less likely to malfunction or break down. If something does go awry, the customer can call those same experts to figure out what’s wrong. Renting equipment can alleviate you of the concern and organization required to accomplish proper training, maintenance, service and scheduling of the machine. Everyone probably values differently the benefits of stress reduction and time gain, but that is one benefit many business owners or fleet managers would agree is created through renting equipment rather than buying it.
12. Gain Flexible Options
A number of factors demand flexibility in today’s business market, chief among them being a major recession, razor-thin profit margins, increasing regulations, market volatility, growing demand for specialized capabilities and the general quest to deliver quality service, great products and efficiency.
Renting equipment enables companies to respond to specialty niches, financial fluctuations and the ebbs and flows of demand. It’s an adaptable option, especially when explored through a cooperative relationship with a trusted equipment partner. The more functions a machine can perform, whether rented or bought, the more justified its expense will be. For example, one versatile body with interchangeable accessories that might dig, reach and lift would sooner be a justified expense than would a machine that does only one of those tasks.
13. Get the Latest and Greatest
Equipment that features up-to-date technology can benefit a business greatly by bringing efficiency and specialization to the project. A piece of rental equipment can potentially do a few specialized jobs so much better than general equipment that you gain in time saved as well as wear and tear on the machines.
Especially with Cat machines, you enjoy raw power and strength as well as precise performance for even the most delicate operations. The intuitive systems in today’s models deliver metrics and other business data that aid the actual work, such as digging guides and easy-change attachments. Many businesses tend to make do with whatever machines are nearby and/or owned by the company, but targeted equipment selection according to technology can potentially enable you to do many existing jobs with fewer pieces of machinery and in less time.
In the same way quality rental equipment can help you better compete in the market, renting also helps you avoid any risk of your machines becoming unusable or obsolete. A good rental partner continuously rotates machines off the fleet in order to have the most updated models and technology available so that you and your jobs benefit from the specialized capabilities.
14. See and Experience a Preview
Maybe your burgeoning business looks to grow and you’d like to see how certain models of equipment, attachments and accessories work. You can get a preview by renting the equipment, which will give you a feel for how it works, the time it takes, its usability and other things that might affect a purchase decision. For a hypothetical example, if you wanted to dig diamond-shaped ditches, you could try a few recommended machines and attachments before you purchase one or as you work your way into enough business to buy one.
15. Add Convenience, Hours
Managing even one piece of heavy equipment represents a lot of responsibility, much less a small or large fleet of machines. When you rent, things such as fluid checks, service, maintenance, hours count, schedules, testing, parts and depreciation becomes someone else’s responsibility. Not only is it easier to let the professionals at a rental company handle some of those logistics for you, but also it frees up your valuable time and saves money in many cases.
Article courtesy of Holt of California