Should You Buy Or Rent Equipment? 5 Costs To Calculate
For a small business, every investment decision must be weighed carefully. Few investment choices has so great an effect on the company's bottom line than the choice to purchase equipment rather than rent it. How can you decide if you've reached the point where it makes more financial sense to buy instead of rent? Here are five key numbers you'll need to put together before deciding.
The Cost of New Equipment
The first — and presumably the largest — financial consideration is the cost of the actual new equipment. Calculate how many rental periods it would take before you would reach and then exceed the cost of the equipment purchase. Don't forget to include extra purchase expenses like freight (in or out), transportation, sales tax, and installation.
The Cost of Maintenance
When you rent someone else's equipment, they take on all the maintenance costs. Such costs can vary widely depending on the nature of the item. Talk with other equipment owners about ongoing repairs and maintenance items such as tune-ups, seasonal servicing, replacement of tires or belts, software updates, repainting, or replacing protective gear. Turn this data into a rough guide of the annual cost to maintain the unit.
The Cost of Personnel
Does the item in question need specialized skills to operate? If you're currently hiring an operator (such as with cranes and other heavy equipment), you'll need to provide your own operators. Certain equipment may mandate a certified, trained, or licensed operator. If the equipment belongs to you, you'll have to pay for this training, maintain that certification, and put someone on the payroll.
The Cost of Updating
What happens when your unit becomes obsolete? A fast-changing industry might even see items become outdated before you finish paying off the loan. Even things that don't seem to change much will eventually fall behind in terms of safety features, communication with other equipment, and software updating. So you'll need to know how long it may be before you have to sell and upgrade.
The Cost of Storage
Finally, where will you keep the machine? As an owner, you'll need to house the item — using potentially valuable real estate — and pay for insurance to cover it. These and other related storage expenses are year-round items, so add them in along with the costs of actually running the machine.
Gathering together these numbers will allow you to understand the true cost of buying rather than renting so you can make the right call. Want help estimating these and other costs? Start by speaking with an experienced equipment rental service today.
