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You may be building a house or road or want to upgrade your existing range of heavy equipment, a question certainly bound to raise in the mind is “Do I rent or buy the equipment?” Going by popularity of rental, one may be tempted to follow the crowd. However, it is important to understand the pros and cons of renting and buying before taking the final call.
Factors affecting buying or renting decision
Financial considerations: One should see if they have enough capital to buy the equipment. If the answer is no, then renting is the best option as the initial capital outlay is low. If they have affordability and use of equipment is regular it better to procure one. One should remember, the rental costs are sunken costs whereas cost incurred in buying equipment can be recovered through rental when not needed or sale.
Cost involved in renting and owning: Renting involves a few costs like fuel, rental charges and at times transport of equipment to and from the rental stores. Owning an equipment involves lots of costs like insurance, maintenance, storage, licensing, operating costs and along with the opportunity cost of locked in capital. Normally, the rental company factors these costs in the rental charges. However, it may be small proportion as compared to the amount to be paid in the heavy equipment is owned.
Duration of the project and frequency of use: The whole argument of cost benefit of renting the equipment is valid only if duration of the project is for a short period and need for the equipment is in brief phases. If the company’s work flow is centred around the heavy machinery or they have many projects where it would be used, then it is profitable to own one. Most often if the heavy equipment is integral part of the business, then cost of renting equipment almost equates the cost of owning the equipment.
The plus point of rental is the equipment can be hired as and when required. However, if requirement of the equipment is continuous most of part of the year, then in due course of time the rental costs may add up to buying an equipment.
Equipment availability and usage: When companies own the equipment, they find ways to utilise it like renting, low yielding projects, adhoc projects even at short notice. This is opposed to renting where the business would factor in the rental cost as well to calculate the economic viability of the accepting a project.
In renting there is a danger that the required equipment is not available on rental or does not do the job as expected. When the business owns the equipment, they know it’s always available for use and its performance capabilities as well.
Also when a company owns the equipment, they instil better confidence in the potential client about their ability to perform the job, preparedness and stability.
Inventory management: Owning the equipment requires the owner of the equipment to maintain it. This involves time, cost and effort throughout the duration of the ownership of the heavy equipment. But if the company does not have the bandwidth for these activities, it’s better to pay few extra bucks as rental charges.
To sum up, renting heavy equipment gives cost benefit for short duration of time while owning one reaps returns over a period of time. Renting is suitable for short term needs and procuring for long term.