When it comes to growing your business, one of the biggest financial decisions you are required to make is whether to invest in your assets/ equipment or rent them to lessen a potential impact on the company’s cash flow.
There’s several considerations that should go into the decision; maybe you have secured some big contracts in the pipeline and need the machinery, perhaps you’re looking to invest in your company’s capabilities or maybe you just need to update some of your current equipment or test new markets. Whatever your reason, there are pros and cons to both sides. So, how do you choose which method is financially right for you and your business?
Here at PFC, we’ve put together a quick guide of things to consider when going through this process;
- Current financial situation
The first question to ask is does the business have the capital available to buy? If you are a small company and opt to purchase a big-ticket item upfront, it may affect your cash flow and that’s why it’s important to research all your options carefully or consider a loan if the equipment brings a greater return than the investment.
Although buying may be a larger one-time financial outlay, the cost of renting can add up quickly, and over a long period of time can end up costing you more. It’s also worth remembering that when you own, the asset does retain some value that can be drawn upon if required or when resold.
- Effectively estimating the cost
When estimating the cost of buying vs financing, it’s important to ensure you have considered the other associated costs that come with owning equipment. Make sure you take into consideration maintenance, operating costs, insurance as well as and potential licensing.
Renting is generally an inclusive cost, but given that a rental company must turn a profit, you should consider that your rental fees will include the purchase price and the cost of ownership, both marked up. You will also more than likely have to pay to transport the equipment to and from the rental store as well, every time you use that equipment.
- Length of project or job frequency
The length of your projects or the frequency, could be the most important factor when deciding.
If the job is short term job, or you need a specialised piece of equipment for a one-off job, then renting makes more sense. The risk, of course, is that if the machine isn’t being used for the entire time, then you’re spending money on a machine that’s sitting and waiting, not making you money.
If you’re working on a long project, or if you’ve got several jobs on the horizon, then buying probably makes better sense given that rental costs add up quickly the longer a job goes on. If you can purchase a multi-purpose piece of equipment (scaffolding, loaders, excavators, skid steers, forklifts, trucks etc.) that can be used for various projects, this makes a great asset on any jobsite.
Below is a table the highlights some of the key points:
| ✔ Lower initial investment
✔ Access to a broader range of equipment at all times
✔ Latest equipment usually offered
✔ Maintenance, insurance etc. handled by another party
| ✔ Cheaper over the long term
✔ Get a return on your investment when you no longer need the equipment
✔ More flexible — equipment available whenever you need it
✔ Less downtime
✔ Possible tax advantages
✔ Ability to rent out equipment in downtime and make money from it
✔ Appear reliable to clients when you already have the equipment to take on their job
Whichever method you feel fits your business best, there are cost implications for both and the team would be happy to discuss financing options for both. Next month’s blog will also explore the different finance options available to your business. To discuss with PFC, how we can help with your finance options, give us a call on 01829 738 799.