Owning Equipment Is Never Free!

Words: George Hedley

Many construction business owners find themselves overly attached to their equipment, often seeing it as a symbol of success. There must be something enticing about owning a lot of yellow iron, a few cranes, backhoes, or lots of trucks to make them feel warm and fuzzy or big and macho. However, owning extensive machinery can lead to significant financial drain if not managed wisely. To me, owning equipment is a declining asset only necessary if it makes financial sense and you can get a positive return on your investment.

The True Cost of Equipment Ownership
As a business coach, I ask my construction clients what they think a pickup truck costs to own. The typical answer is around $1,000 to $1,500 per month. Let’s break down the real expenses associated with owning a ¾ or 1-ton pickup truck. Typically, a construction pickup lasts around five years. When you consider the purchase price, financing costs, insurance, oil, tires, maintenance, and depreciation, owning and maintaining a pickup truck costs $75,000 to buy and equip. The cost of ownership and maintenance for 5 years is about $26,500 per year. This does not include gas, overhead, or profit markup. Now, add in the need for down payment money, which ties up your working capital, adds liability to your balance sheet, and makes it harder to invest in growth. Additionally, good business practice suggests aiming for a 20 to 25% return on your investments, which adds another $400 per month to the total cost of owning a pickup truck. Therefore, the real cost of ownership is $31,300 per year.

When you look at renting a pickup truck, monthly rates typically range from $1,800 to $2,400 per month, which includes standard maintenance and tires, but you’ll still need to factor in insurance, gas, and oil. Plus, renting requires no down payment, and when business slows down, you can easily return the vehicle. This flexibility can significantly reduce financial stress and improve cash flow. Based on this comparison, it is often cheaper to rent versus own pickup trucks for your jobs.

Assessing Billable Hours
The crucial factor in deciding whether to own or rent equipment is determining how many billable hours you can utilize the equipment. Here's a pickup truck cost rate breakdown based on hours worked at $31,300 cost per year (Not including gas or markup):

Streamline Your Equipment Strategy
First, know that equipment is never free, even if it is paid for. Equipment costs always include maintenance, insurance, yard space, and return on investment costs. If a piece of equipment is worth $100,000, it should make a minimum 25% return on investment, which will only occur when it is working. By doing the math, it’s easy to determine if you should own, rent, keep, or sell your equipment. Evaluate your equipment portfolio and consider selling underutilized assets. If you can keep it working enough billable hours per year to make money and cost you less than renting, it makes sense to own equipment. If the cost per hour exceeds the rental rate, consider renting instead. Contact local rental companies to compare your ownership costs with their rates. It might be more economical to relinquish certain equipment, especially if you aren’t utilizing it more than 1,000 to 1,500 hours per year. Sell the unprofitable equipment, take the cash, and boost your bottom line by investing it in a strong management team or assets like real estate that grow in value every year.

Additionally, some equipment can last many more years, like job office trailers or water trucks. These can provide substantial returns, often yielding over 25% annually when utilized or job-charged. Take a critical look at your equipment strategy and assess what you truly need for effective operations. You can reach out to GH@HardhatBizcoach.com for further insights. Boost your bottom line by knowing your real costs and positioning your business for profitable growth.

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ABOUT THE AUTHOR
George Hedley CPBC is a construction-certified professional business coach, consultant, and speaker. He helps contractors increase profits, grow, get organized, systemize, and move to the next level! He is the author of “Turn Your Construction Business Into A Profit-Making Machine!” available on Amazon.com. To schedule an introductory coaching session or get his free e-newsletter, email GH@HardhatBizcoach.com. Watch his videos at youtube.com/@HardHatBizCoach or download online courses and get his contractor templates at hardhatbizcoach.com.

Owning Equipment Is Never Free!

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