Business Issues
struction equipment daily, and Ritchie Bros. is no exception. When to buy or rent equipment, according to the company, requires considering key factors.
Direct from the company, here’ s an overview of some of the things you should bear in mind before deciding when to buy and when to rent equipment:
Current Financial Situation
1 This seems like the most obvious factor to consider— do you currently have the capital to buy or is renting a better option for now? However, you should look beyond your current situation and project your costs over several months or years. Although buying may be a larger one-time financial outlay, the cost of renting can add up quickly, and over a long period of time can end up costing you more, especially if the equipment isn’ t being used for the entire rental period. And don’ t forget: when you own, you can see a return on your investment when you sell.
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Cost of Ownership vs. Cost of Renting It’ s also important to estimate the cost of equipment ownership versus the cost of renting equipment. With ownership comes maintenance and operating costs, insurance and other fees such as government licensing. Renting is generally an inclusive cost but given that a rental company has to turn a profit, you should consider that your rental fees will include the purchase price and the cost of ownership, both marked up.
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Length of Project or Job Frequency Of all the things to consider, project length or the frequency of jobs on the calendar could be the deciding factor in whether you rent or buy. If it’ s a short-term job, or you need a specialized piece of equipment for a one-off job, then renting may make more sense. The risk, of course, is that if the machine isn’ t being used for the entire time it’ s rented due to changes in the project schedule or unforeseen hold ups; then you’ re spending money on a machine that’ s sitting and waiting, not making you money. If you’ re working on a long project, or if you’ ve got several jobs on the horizon, then buying probably makes better sense given that rental costs add up quickly the longer a job goes on.
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Equipment Availability and Usage The big advantage of owning your own equipment is that it’ s available to you 24 / 7.
“ If you own it, you control it,” as the saying goes. You can react to unexpected changes in projects or project schedules, take on jobs at a moment’ s notice and complete projects with less downtime. Before you decide whether to rent or buy, you should also weigh the potential risk of a rental company not having the machine you need when you need it. Owning can be a plus to potential clients too, who know you’ re not only equipped to take on their job, but are also a stable, trustworthy business.
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Fleet Management and Inventory Control Managing your equipment is also something to consider. If you have the skills and the time, you can save money over the long haul by buying some or all of your equipment and taking care of insurance, maintenance, etc. yourself. If you don’ t, you may want to
What Are Your Options?
Harry Fry & Associates offers some helpful definitions of purchasing and leasing terminology you may come across:
Purchasing Options
Term Equipment Loan: Take advantage of terms of 24 to 120 months, depending on the age of the collateral. In lieu of a cash down payment, use the equity you have in existing equipment. Structure a variety of payment options for the full length of the borrowing terms.
Customized Equipment Loans:
• Deferred Payment Option: Defer your first payment for up to 90 days. This plan allows your new acquisition to generate revenue before your equipment loan payments begin.
• Step Payment Program: Gives new equipment start-up time. Structuring a low-to-high repayment program allows for lower-than-normal payments in the beginning, when your acquisition is new to your fleet, and then increases as your acquisition gains market share.
• Seasonal Skip-Payment Program: A great option if your workload varies throughout the year due to varying weather conditions. Loans can be
Weighing Your Options
pay a little extra to rent. You’ ll know where it is, who’ s running it, and you can schedule jobs and equipment accordingly. For shorter-term jobs, you may want to consider renting, but buying gives you added flexibility.
Lots to Like About Owning
There’ s a lot to like about equipment ownership, said Gerri Detweiler, an education consultant at Nav Technologies, Inc. One of those is tax deductions.
“ Purchasing equipment outright has some tax benefits that you may enjoy,” Detweiler said.“ You can deduct up to the full purchase price in the year you bought qualifying equipment, which will reduce your taxable income. This is called bonus depreciation and is in contrast to writing off the asset over its useful life.”
Detweiler also noted that a discounted cash flow analysis can be used to compare the cost of leasing versus buying. SCORE, the non-profit business mentor organization, offers detailed examples of how to run a lease vs buy analysis.
structured with no payments or partial payments during off-season periods.
Leasing Options
Finance Lease or Capital Lease: A non-tax-oriented lease, which provides your company with a stated purchase amount at the end of the lease term.
TRAC Lease: A terminal rental adjustment clause( TRAC) lease is a tax-oriented lease available for over-the-road, titled equipment. The equipment lease is structured with a residual guaranteed by the lessee. Generally, the TRAC lease requires a payment in advance. At the end of the lease term, the equipment can be purchased for the guaranteed residual amount or returned.
Tax Lease: An off-balance sheet lease that can help to preserve your company’ s ratios and conserve capital. The tax lease provides your company with structured payments where you will only need the use of the equipment for a specified period. At the end of the equipment lease term, your company has the option to purchase the equipment at Fair Market Value( FMV), return the equipment, or renew the lease and keep the equipment.
18 CRANE HOT LINE ® July 2024 • www. cranehotline. com