Masonry Magazine November 2005 Page. 25
Consider Your Options
VARIOUS REPORTS and studies have been produced to help business owners weigh the costs of owning versus renting. Standard industry guidelines and accepted computation formulas include the "Rental Rate Blue Book" and the "Custom Cost Evaluator," along with the Cost of Facilities Capital, a government-created statistical formula that factors in the cost of money invested in machinery.
When you first do the math and evaluate the various expenses and processes involved with obtaining a certain piece of equipment, the comparison can help you choose the option that offers the best potential economic advantages for your company.
Buying
WHEN BUYING any new equipment, the purchase price is just the beginning. Consider all of the tangible out-of-pocket expenses, such as taxes and insurance for that equipment, plus any interest you pay if the money is borrowed. Next, factor in maintenance (parts and labor), plus bigger repairs later on. You also have to include storage and transportation costs. Keep in mind that the operating costs of owning a machine will often keep growing. You also need to ask yourself what your business could do with that capital if the money were being used effectively elsewhere.
Of course, if you use a piece of equipment at or near maximum capacity and maintain that level of usage for a period of time, buying may be your most logical choice. Buying allows you to begin building equity in the equipment. Unlike other major purchases, such as commercial real estate, it is difficult to predict with any certainty the value of the equipment in five to eight years.
"In many cases, you would have to be utilizing a piece of equipment about three weeks out of a month to make it a worthwhile purchase," explains Larry Pearce, regional fleet manager for the Northeast Region of RSC Equipment Rental. "Otherwise you have it sitting around and doing nothing, and then you're still paying for it. If you don't use it that much, buying the machine is simply money thrown away."
Leasing
IF YOU INTEND to use a piece of equipment often enough to own it, but you don't want the big upfront capital outlay of buying it, leasing may offer a good financial alternative.
To begin with, leasing allows you to avoid the initial purchase expense, which frees up your bank line or cash flow. The monthly payments are then considered operating expenses, rather than capital expenditures on most balance sheets, leased equipment are treated as rentals. Leasing can also offer tax advantages.
"If you're planning to use the equipment for an extended period of time, leasing might make sense, depending on the circumstances," says Pearce, "but you have to know what you're doing. A lot of people get confused or intimidated about leasing, and it can be hard to understand what they're getting into and whether they're really getting a good deal or not."
Unlike equipment rentals, it's also important to remember that your business is responsible for maintaining and repairing leased machinery. Also, unlike rentals, your business must carry insurance coverage on leased equipment and the premium amount can often run much higher than insurance on owned equipment.
Renting
WHEN DEALING with a reputable provider, renting can give you all of the advantages of having a premium piece of equipment, without the costs or responsibilities of ownership. When a machine needs service or repairs, somebody else does it. You'll never have to worry about how to dispose of the unit at the end of its usable life. Also, a wide assortment of reliable rental equipment can be delivered to the job site quickly, giving you convenient access to the right equipment for almost any task.
If you use a piece of equipment at or near maximum capacity and maintain that level of usage for a period of time, buying may be your most logical choice.
Working with rented equipment can even simplify bidding and billing processes. It can be tricky to gauge the true cost of operating and maintaining owned equipment, but the price of a rental is clear from the very beginning. There's just one accountable cost figure: the rental invoice.
A good example of a rent-versus-buy comparison is a standard 185 CFM air compressor unit. Based on a purchase price of $12,000 and an annual usage rate of 500 hours, this compressor would cost about $5,420 a year when you include other operating and ownership expenses (except fuel). Yet with three month-long rentals per year, that same machine would have an operating cost of only about $1,800, for an annual savings of $3,600.