There are many advantages of owning construction equipment, but whether or not owning construction equipment is the best option for your business depends on many factors. While there are several benefits to buying construction equipment, there are also some drawbacks. Every business is different, and you need to consider your budget, your business needs and the frequency that you will be using a particular piece of equipment before deciding whether to buy or rent construction equipment.
Table of Contents
- Owning Equipment
- Renting Equipment
- Should You Rent or Buy?
- Make Your Construction Business a Success
Owning construction equipment may seem like a large commitment, but in many cases, it is very beneficial to businesses. It costs more up-front than renting does, but it can save you money over time depending on your business projects and needs. To help you determine if owning your own equipment will make your business more successful, consider the following benefits and drawbacks.
Benefits of owning equipment include:
- Convenience: Owning construction equipment gives you the convenience to use it whenever you need it.
- Efficiency: Owning construction equipment can give your team extra time to work with the equipment and become familiar with using it. When they have a higher familiarity with the equipment, they can be more productive in completing projects.
- Mastery: When you own construction equipment, you have total control over when and how it’s used. You also have control over the maintenance and upkeep of the equipment, so you can ensure it stays in top shape.
- Professionalism: Clients will notice the professionalism of your business when you complete jobs correctly and on time. By owning your own construction equipment, your team can complete projects for clients with quality and efficiency. Additionally, when you own equipment, you can react to unexpected project changes without worrying about equipment availability.
- Business assets: Owning pieces of construction equipment makes them business assets you can sell when you no longer need them. You can resell any piece of equipment you own as long as there is demand for it.
Some of the drawbacks of owning your equipment include:
- Transportation: When you own construction equipment, you have to organize and pay for it to be transported to and from job sites.
- Depreciating asset: Pieces of construction equipment can depreciate in value over time due to age, deterioration and wear.
- Cost of ownership: The monthly cost of owning construction equipment is typically lower than leasing it, but the upfront cost of a down payment will usually be higher when you purchase a piece of equipment. Purchasing equipment can also tie up your lines of credit or deplete your cash flows depending on how much your business is able to afford, so it’s important to consider these things if you want to purchase equipment.
- Hidden costs: The hidden costs of owning equipment can include taxes, interest, insurance, fuel, storage, repairs, maintenance and transportation of the equipment. However, costs such as insurance, interest, depreciation and repairs are tax-deductible. You can use the Internal Revenue Service (IRS) Section 179 Deduction for new or used capital equipment.
Sometimes, renting is a more cost-effective and convenient option when you need equipment. Renting allows you to use the equipment you need without a large commitment. As with buying construction equipment, renting also has benefits and drawbacks to consider.
Some of the benefits of renting equipment include:
- Flexibility: When you rent equipment, you only have to pay for it when you are using it. Many rental companies offer rates for daily, weekly and monthly use, so you have the flexibility to choose how long you use the equipment.
- Fewer costs and risks: Renting allows you to use equipment without worrying about costly repairs, maintenance or upkeep. You can also use equipment without having to coordinate its transportation because most rental companies will deliver equipment to your job site and pick it up when you are finished with it.
- Experimenting with brand and models: Renting allows you to try out different equipment because most rental companies carry a wide variety of brands and manufacturers. This allows you to compare and contrast different makes and models to figure out which ones work best for you. This is helpful if you are interested in buying equipment in the future. Renting also allows you to use the latest models of equipment because rental companies often carry the most current model year of equipment.
As you consider your options, be sure to keep these renting drawbacks in mind:
- It is not an asset to your business: Construction equipment is not an asset to your business if you rent it. This means you spend money on it without the opportunity to resell it in the future.
- Inconvenient: Renting construction equipment can be inconvenient because you have to worry about when equipment will be available and how much it will cost to rent for the amount of time you will need it. Renting equipment can also be tougher for your team members who operate the equipment because they will have to learn the different nuances of a variety of machine models.
- Requires more logistical planning: Renting equipment requires more logistical planning because you have to coordinate the availability of rental equipment and your project needs. Rental equipment might not always be available when you need it. You also need to consider the costs of renting — for example, it may be cheaper to rent equipment weekly versus a few days even if you only need the equipment for a few days. This is because daily rates can add up quickly.
Should You Rent or Buy?
When deciding whether to rent or buy construction equipment, there are various factors to consider. For instance, how often you will need the equipment and how much you can afford to spend on equipment are important. You also have to think about the team that will be operating the equipment. Will they work more efficiently if they have time to learn one specific machine, or can they still complete quality work if they work with a variety of machine models?
If you only need equipment for a couple of projects, renting may be best because it will be the most cost-effective option. You could lose money if you spend a large amount to buy a machine that you will only use once or twice. Renting would allow you to spend money on it only when you need it. However, if you know you will need a certain piece of equipment for many projects or for a significant amount of time, buying the equipment you need may be the best option.
The main rule to remember is that if you plan to use a piece of equipment 60%-70% of the time, it is better to own the equipment. Buying equipment means you can pay an up-front cost and make lower monthly payments on a piece of equipment that will continue to bring you profit as you use it for more projects. Renting equipment you use consistently could cost you more money over time because the cost of renting can add up quickly.
Make Your Construction Business a Success
There are many benefits and drawbacks to purchasing and renting construction equipment, so it’s important to weigh your options before making a big decision. Purchasing frequently-used equipment to own can benefit your company in many ways, but it is better to rent pieces of equipment that you will only use a couple of times. Coachfirm is dedicated to helping businesses find success. Check out our blog for more tips on how to make your construction business thrive.