How do you decide whether to own earth moving, aerial, material handling and other equipment, or rent it on a per project basis? It’s a simple calculation: Do you have secure, fixed-term contracts that will drive utilization and sufficient revenue to cover the cost of equipment operations, repair and maintenance, and loan payments?
Utilization is the key. There are many ways to calculate utilization, but a simplified approach is to use the industry-standard calculation of operating equipment 22 days or 176 hours per month. Equipment operated, for example, 14 out of 22 days during a month has a utilization rate of 64 percent.
A practical guide is that if construction equipment is to be utilized 60-65 percent of the time, owning the equipment could be more cost effective than renting. But when equipment is utilized 60 percent of less, there is increased financial risk and generally insufficient revenue for a profitable business to cover operating expenses. When equipment is calculated to be utilized less than 40 percent of the time, then renting is always the best option.
The other costs of equipment ownership – depreciation, operating, administrative, transportation, maintenance and government regulations – should all be factored into your rent or buy decision.
You may also want to consider the financial flexibility of renting versus owning. Financing equipment, whether utilizing an existing line of credit or arranging a secured loan reduces the amount of available cash that can be used for other purposes, and affects the balance sheet, possibly limiting future borrowing. An important and relatively unpredictable variable is whether there are sufficient future jobs to cover the cost of multi-year ownership.
For more information about whether to rent or own equipment, please read the article Trends In Owning vs. Renting Construction Equipment by clicking here or contact your nearest Neff Rental Branch at 888-709-NEFF.