Businesses across all industries need to look at all possible aspects of their operations to gain an advantage on finances. Every single element that contributes to the company’s overheads needs to be assessed carefully to determine whether other options may reduce costs and increase profit margins. As such, for contractors, an essential business decision to make is deciding between owning and renting equipment.
Different types of heavy equipment such as tipper trucks, loaders, and excavators all play an essential role in executing a project. But similar to other resources required to perform the daily operations of a business, streamlining the expense for these resources is vital to maximising the function of each item of equipment.
Regardless of if the company is large or small, comparing the benefits of renting versus owning equipment comes as a primary priority. A cost-benefit analysis is one excellent method of crunching the numbers and letting concrete data determine which decision to make.
What types of equipment do construction companies typically rent?
Rental equipment ranges from small items like generators to large heavy equipment like cranes. Some rental companies specialise in leasing specific types of equipment only. For example, Crane Hire Lincoln caters to local contractors in the construction industry, as well as any company who may need the lifting and moving capacity only cranes can provide.
Apart from the construction industry, other industries that also benefit from leasing include mining, waste disposal and processing, trucking, agriculture, logging, retail, and many others.
How can renting increase profit margins?
Companies rent equipment for various reasons, but perhaps one of the main goals of choosing to rent than own these resources is the cost-effectiveness of this solution. The following are specific examples of how equipment rental can reduce overhead costs and increase profit margins:
- No upfront investment required. Owning large equipment is an expensive investment which involves planning and preparation. After buying a piece of machinery, the company’s money is tied up in that equipment until such time that it is sold. Renting allows the business to keep moving forward and fulfilling projects and use the capital to keep other aspects of the operation running smoothly.
- Avoid long-term expenses. Owning equipment comes with the additional costs of maintenance, transport, and storage. All these contribute to the total overhead costs of the company. There are instances when owning a piece of equipment becomes a more feasible solution. A good indicator is whether the machinery will be used at least 70% of the time.
- Renting may be a tax-deductible expense. Many factors affect every company’s tax return, and it is possible to file rental costs as tax deductible items. Nevertheless, this will depend on the nature of the business as well as the tax scheme offered by the government.
Although there are many areas of business operation that impact the overall profit of a company, renting equipment is one aspect worth considering. The fact that most construction companies rent equipment all the time is proof that this solution remains a sound business practice.