How to Decide What’s Best for Your Business: Rental or Purchase

HOW TO DECIDE WHAT’S BEST FOR YOUR BUSINESS

A business that is dependent on the use of heavy equipment has a few decisions to make about how they’ll acquire the equipment that is vital to completing a project properly, efficiently, and on time. Your specific situation will be different than another construction or excavating business so it’s not easy to just get the needed insights from a fellow business owner on what they do. You need to take into account a few different factors that will contribute to making the right choice for the vitality and management of your company.

How to Decide What’s Best for Your Business: Rental or Purchase

Consider the main factors that will help you decide to buy or rent your construction equipment.

• Your current financial state
• The resources and skills available within your company for inventory control and fleet management
• The costs associated with buying and how they compare to renting
• You need to have equipment that’s available at a moment’s notice
• If the owned or rented equipment will be used for the appropriate length of time

HOW YOUR BUSINESS USES CONSTRUCTION EQUIPMENT

The biggest deciding factor behind renting or buying is how often and in what manner the heavy equipment is used. Undoubtedly there will be some special equipment that will only be used for occasional projects and is an easy renting choice. With the various uses for the multitude of construction equipment products, there will likely be a few machines where it’s not as clear whether renting is the best option financially or buying will give you better returns in the long run.

By doing a few simple calculations, you can have a pretty good idea of whether it’s best to rent construction equipment or if you’ll gain the most benefit from purchasing your equipment.

DETERMINING YOUR UTILIZATION RATE
Ultimately the amount of use a certain machine gets will determine whether to rent or buy your construction equipment. There are a number of other factors to consider that will come into play, but if your business uses a certain piece of equipment most days and for the long-term, then it’s likely easy to determine that purchase is your best way to go. While the nature of future projects may change you can calculate a best guess on your utilization rate from recent use and projected projects.

Here’s a basic way to figure out what your utilization rate would be for a specific piece of equipment. We’ll talk about a telehandler for this example:

Look at the use of the telehandler for the past 3 months and get the number of full days the telehandler has been used (if it just ended up getting used part of a day, then add the parts up to make the equivalent of a full day) — for our example, we’ll say it was used 45 days.
Divide that number by the industry-standard calculation of possible operating days of 66 (22 days a month).
The utilization rate is 68% (45 divided by 66 equals 0.6818 multiplied by 100 to get a percentage of 68).

There’s nothing wrong with forecasting usage in the future to have the best guess at your future utilization rate, especially if you have some bid prospects that you have a good chance of getting or have projected projects. Either of these cases could lead you to seriously consider buying some of that equipment that has only made sense to rent in the past.

If your utilization rate is 60% or over, buying is generally the best choice.
If your utilization rate is between 40% and 60%, then you’ll want to consider how the other factors relate to your business and look at all the pros and cons of owning and renting.

If your utilization rate is below 40%, renting is generally the best choice.