You may have heard about the companies that will allow you to rent business equipment so that you can avoid buying it. This may sound like a good option for those that can’t afford the huge investments of owning business equipment. Others question if this is worth it in the long-run. It’s a popular option among contractors because equipment is their biggest expense outside of labor costs.
Machinery will either make your workforce more productive which will increase income or it will take away from your company’s bottom line which will hurt your income. It’s important that companies consider whether to use business rental equipment or to simply buy them outright. So which is better?
Buying Construction Equipment
If you’re considering buying your equipment, you need to understand that it will cost you much more for the initial investment over smaller rental costs. Buying may be more logical if you use your equipment at almost maximum capacity and maintain that level of use regularly. Some companies only use the equipment at maximum capacity during peak seasons which means that normally they aren’t using them that much on a day to day basis.
While owning equipment allows you to deduct insurance, depreciation, taxes and interest, you are still paying a fortune for the down payment. If you weren’t spending so much money on that huge down payment, think of what you could be spending that money on instead. Don’t forget that you’ll need storage and transportation costs with owning. You’ll have to dispose of the equipment once it’s no longer working and useful.
Renting & Leasing Construction Equipment
Many smaller companies will opt for renting their equipment. They can’t afford to own all of their equipment but they can’t afford to have no equipment. With renting, you’re only paying for it when you need to use it. You can return the equipment when business slows down or when projects get canceled saving your company money. Bryan Brooks from Rental Force suggests that if you’re going to use business rental equipment for more than two years, that you’re better off to outright buy it.
Rental contracts are very flexible and you can rent equipment for any length of time. Rental equipment will include maintenance provisions and the good news is that if you don’t like how they operate after you’ve used it, you can return it because you aren’t committed to a long-term contract. Many people that go the leasing route find that they are essentially tied to a loan with monthly payments, structured payments and high interest rates. This is more expensive than buying and more formal than renting, but you can deduct monthly payments as an operating expense when you lease and you have the option to buy at the end of the term.
Renting is a great way to simplify your budget because you’re not worrying about administrative requirements or repairs. Rental expenses can be deducted as a business expense. You can try the newest and best equipment that have been serviced to top condition while buying would limit the quality of equipment that you may be able to afford.
There is no right or wrong way to go but renting your business equipment can offer some amazing benefits. Whether you are looking for vehicles, forklifts, generators, dumpsters, air compressors, sweepers or other equipment, most things can be rented for a great price at great quality and it will save you the hassle of owning.