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The Official Publication
of the Mason Contractors
Association of America
To Rent, or Not to Rent?
Now that the busy season is upon us, contractors nationwide are rolling out their fleets and dusting off their tools and equipment for what hopefully will be another profitable summer. But, if they are like any of the contractors I have spoken to and worked with over the years, there is a burning question on their minds: Do I rent, or do I buy? That is, indeed, the question.
According to the most recent data from the American Rental Association (ARA), the construction equipment rental industry’s forecasted revenue growth for 2012 is expected to increase by more than 6 percent, which is three-times the growth forecasted for US GDP in 2012. The equipment rental industry obviously is playing an important part in the recovering economy, but when does it really make sense for contractors to rent equipment, as opposed to owning it? With the economy now making its way toward recovery, contractors here in the United States have some big decisions to make, and those decisions will have real consequences for their bottom lines.
What are the considerations when making the choice to rent or buy? How are these factors evaluated to get a clear picture, and make the most profitable decision for their business?
Key decision factors
Another key factor to understand is the rate of utilization. This can be estimated on a monthly basis by looking at the past year’s seasonal contracts, forecasted projects, and potential prospects. In order to determine an expected utilization rate for a particular piece of equipment, take the number of days the equipment will be used in a month-long period, and divide it among the average amount of working days in a month, which is 22. This will give a contractor an approximate utilization rate percentage.
It stands to reason that numbers anywhere in and around 50 percent could potentially present an investment risk, as the profits made through utilizing the equipment may or may not outweigh the cost of ownership (depreciation, maintenance, insurance, etc.). So, a piece of equipment with a projected utilization rate well above that would likely be most profitable if owned, and any piece of equipment well below that midpoint, would likely be most profitable to rent.
Benefits of renting
Rental also offers access to a variety of equipment without tying up a contractor’s investment capital, and a fixed rental cost can be easily factored into future bids. Renting also can increase a contractor’s borrowing power. Since rented equipment is not listed as a liability on a balance sheet, it can improve one’s ratio of assets to liabilities.
Benefits of ownership
The right decision for your business
Eudes Defoeis product manager, handheld tools and light compaction, Chicago Pneumatic Construction Equipment.
|Last Updated on Monday, 04 June 2012 16:26|