Knowing your
business and
assessing your
financial situation are critical when considering your capital equipment acquisition options
Many contractors like to have a yard full of machines. They like to know that no matter what kind of job they're about to take on, they own most of the equipment and tools they'll need. When a job comes up, they've got the equipment and they're ready to go to work. And when they measure their assets, they take pride in the amount of machines they own.
But what so many companies fail to consider is the cost of ownership. They calculate the purchase price but don't take into account the myriad additional costs that can be eliminated, significantly reduced, or converted from fixed to variable.
Owning equipment means you have to finance the purchase of it. You have to maintain it. You have to store it, which also means you need security and protection to keep it safe and guard against the ravages of weather. You need a maintenance staff, which costs you money in hiring, training, and salaries, and you have to train them continually because equipment innovations create new service requirements.
You need to pay for transporting the equipment to jobsites, which means you have to pay for trucks, their maintenance, drivers, and their training. And you continually need to educate your equipment operators on the unique requirements of each job because every construction site and application is different.
However, it's possible to dramatically reduce these costs and take advantage of other services that can benefit your company with a method that has helped many companies stretch their budget and build their business. Renting capital equipment lets you concentrate on what your company does best instead of buying, selling, organizing, and maintaining equipment.
Rent vs. buy. Of course, pieces of equipment like power tools, cable pullers, and work trucks that you use constantly probably aren't candidates for rental; it's just more cost-effective to own them. But equipment you use less often — especially some of the pricier or more specialized types — may be more cost-effective to rent. “You may have a core group of machines that will always be on a job while others are more specialized,” says Paul Parker, marketing manager of ROMCO Equipment Co., Dallas. “Rather than have those specialized items sit and do nothing, many of our customers rent for need.”
Contractors are starting to discover that renting equipment makes sense, not only in times of need but as a regular way of planning equipment usage. The following benefits speak for themselves:
If you own equipment, not only do you need to employ mechanics, you need tools, machines, and expensive diagnostic equipment to help them do their jobs. You need a location for them to work in, which can be a major expenditure. And you need to train and continually retrain them on developments in the latest equipment. In addition to the initial investment in tools and equipment, there is the continual expense of fluids and solvents and their disposal.
Equipment continually improves, and with each successive generation it gets more powerful and more efficient. Why not take advantage of these continual innovations from equipment manufacturers? Rental companies make it their job to have new equipment in their inventories, as well as the latest attachments and accessories.
In good times, you can pick and choose projects. If you want to specialize in a certain type of job, you can usually find enough work to keep you, your workers, and your fleet of equipment busy. However, in tougher economic times, the ability to specialize is frequently limited. Too often, you have to take any work you can find and be willing to take on different types of jobs. In such times, contractors don't get enough use out of their equipment to justify ownership. By renting, you can find whatever you need, when you need it, without the costs of purchasing or maintaining it.
Rental companies are knowledgeable about a variety of equipment and can offer this expertise by not only helping you choose the right equipment for the job but also by teaching you how to use it safely and productively.
Getting equipment to the jobsite is a major cost in itself. For small equipment it's a minimal problem; you grab a few items, toss them into the back of a pickup truck, and take them from the yard to the construction site. But transporting larger equipment requires greater effort and the use of tractor-trailers or other delivery vehicles.
Such vehicles are expensive. You have to maintain and store them just as you do the equipment. And you have to find skilled drivers who know how to secure equipment on the truck, drive safely, and load and unload equipment.
Equipment will break down on the job, so quick repair is vital. Often when equipment breaks down on a job, it can take hours, days, or even weeks to replace. Meanwhile, workers stand around with nothing to do.
When a piece of equipment breaks down, do you have a replacement machine ready to take its place immediately? Do you have competent mechanics who can stop what they're doing and rush to the jobsite to diagnose and repair the machine? Do you have the necessary parts to repair the machine immediately? By outsourcing these costs to the rental company, you reduce fixed costs and convert them to variable expenditures that generally won't be as high as if they were fixed.
An effective rental company is stocked with repair and service trucks that carry the parts, hoses, fluids, and solvents needed to repair equipment quickly. And if equipment can't be repaired immediately, the rental company can quickly replace the broken-down machine with another that can do the job.
Why buy equipment you don't expect to use often? If you need a particular machine but don't have the certainty of long-term use, why risk the financial health of your company with a major capital expenditure? It simply doesn't make sense when you can rent the same machine. Similarly, rental allows you to test equipment.
Your core competency. Taking a look at all these needs brings up a major question that contractors and constructors must answer. What do you do best? What makes money for your company? Is it operating a mechanics' shop? Is it hiring and training mechanics? Is it running a parts department? Is it owning, operating, and organizing a fleet of trucks?
The answer is probably none of the above. But you have to accept all these tasks as part of the necessary cost of doing business — instead of concentrating on construction and maintenance activities — if you own your capital equipment.
Outsourcing these services to an equipment rental company can eliminate those burdens and convert these fixed costs into variable costs. When you have more work than you can handle and income is pouring in, you might not mind handling these tasks. But that's probably not the case most of the time. When you're using your equipment all the time, it might make more sense to own it. But chances are, you're not using several pieces of your equipment enough to make it worth your while to incur so many infrastructure costs.
It's obvious to many contractors that renting makes sense when there's a sudden short-term need for more machines than a contractor owns, when there's a need for a piece of equipment they don't use frequently, or in case of a breakdown. For these reasons, more and more companies rent as a way of procuring much of their equipment. They've found that rental enables them to concentrate on their core competencies and that they can simplify operations and reduce overhead and infrastructure. Not only that, they can do a better job by having a greater variety of equipment, tools, and attachments available when needed, and they can benefit from the expertise of rental company personnel who act, in effect, as advisers to their projects. And because they use the rental company's fleet instead of their own, they tend to have a more modern, well-maintained fleet, with a well-stocked parts department, enabling them to operate more efficiently.
The option of rentals continues to grow dramatically for all kinds of electrical construction and maintenance applications. It will save you time and money and allow you to concentrate on what you do best without having to concern yourself with fleet management. “As with any other business decision, management needs to do an honest assessment of the situation,” Parker says. “There are times when renting is a better option. Other times you're better off going long-term with a purchase. There are so many variables that can affect which decision is best, and nobody knows your business like you do. A good equipment dealer will be glad to help you weigh your decision, but the bottom line is to follow your gut instinct.”