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Renting vs. Buying

Maybe you're a smaller contractor with just yourself and a couple helpers doing the work. Most of the time, the tools in your truck will get the job done. But every now and then, you encounter a job where you need to work at heights or do some excavation.

Or maybe your business has gotten to the medium-sized stage where you're looking for the next growth opportunity. You know that means taking on some more complex jobs where specialized tools and equipment are necessary.

Each of these scenarios creates an opportunity to balance the benefits of buying and owning equipment or tools versus renting them. Increasingly, renting equipment has become a more and more popular choice even for very large contractors with enough money to maintain large fleets. But how do you figure out whether you'll save money buying a particular piece of equipment versus renting it?
To figure this out, you'll need to understand your total cost of ownership for a given item. The calculation is not complicated, but where people falter, is in not including all the relevant factors. These are:

  • The purchase price minus the expected residual value when the equipment is sold
  • Cost of financing
  • Insurance
  • Maintenance labour and time lost for downtime (including training for repair staff)
  • Estimated cost of repairs and downtime for breakage
  • Transportation and storage
  • Grease, fuel, filters, tires and other consumables
  • Cost of selling
  • Subtract any tax benefits for depreciation and cost of borrowing
  • Next, you want to look at utilization. Count the days, including partial days, that you use this type of equipment in a month. Divide by the number of workdays in a month. A general rule of thumb is that equipment that is used less than half the time is a candidate for renting. So, if you only use the equipment about that much or a little more, your costs of renting will start to approach or fall below the costs of ownership. But these are rough guidelines – to really calculate the costs, compare the total cost of ownership to your rental store's rates. Note that Home Hardware Rental stores offer discounts for longer-term rentals. Renting for a week costs about the same as renting for four days and renting for a month costs about the same as renting for three weeks. With a little organization to keep equipment on the jobsite for an extended period of time, you could take advantage of this to change your calculation. 

     Remember, that borrowing to finance equipment purchases will tie up your credit to some extent. Also, look at the tax implications of claiming depreciation and leasing costs versus the effects of using rental charges to lower your operation's revenue.
    Use your Enterprise Resource Planning (ERP) software to generate an accurate picture of what owning equipment is costing you and how those costs are translating into actual work done. You may very well have some surprises pop out of the data, that suggest you're spending too much money on the equipment you own, and you’re better off renting. 

    In addition to the calculations above, you might want to take into consideration some other things that are harder to quantify. When you buy equipment, it starts becoming obsolete the minute it's delivered. On the other hand, your local Home Hardware Rental centre frequently upgrades its fleet to make sure you're getting the latest technology. There are certainly productivity benefits to using modern equipment that's not somewhere in the middle or at the end of its life span. When you own, and the equipment breaks down on site, you are stuck until it can be fixed. Your local Home Hardware Rental location likely has a second unit in its fleet that can be rushed out to you if the equipment needs a major repair. Minimizing downtime means dollars on your bottom line. Also, working with a Home Hardware Rental centre means you can ask the knowledgeable counter staff about the best equipment for your job. There can be some real savings when, for instance, you don't take a generator or heater to the job site that is much too big for what is needed. Renting gives you the opportunity to match your equipment to the application. 

    Finally, don't be afraid to drop into your local Home Hardware Rental store to ask their advice on whether it makes more sense to own or rent a particular item. Home Hardware Rental locations are independently owned and managed by people with years of experience in the rental industry. There's probably no one in your community that knows more about buying, selling, and maintaining construction equipment.