Equipment Hire vs Owning Outright
One of the tough decisions often faced by earthmoving and construction businesses is whether to buy their next machine outright or if equipment hire is a more cost effective, feasible solution.
Say you have won a new contract – great! BUT you don’t have a machine in your fleet required to complete the project at your disposal. What do you do? Hire or buy?
All situations and businesses are unique so there is no one-size-fits-all solution. With pros and cons associated with both options, how do you go about this decision and work out what is best for you and your business?
In this article we take a quick look into the major considerations involved in the decision-making process. We also talk about how tailored finance solutions can help to alleviate some of the stresses that can be encountered.
Weigh up Costs
The first thing to do is look at the machine usage. Ask yourself a few questions:
- What exactly are you going to be using the machine for?
- How specialised is it?
- Are you going to use it every day?
- How long are you using it for?
Answering these questions should give you an idea of which way to go. If you intend to use it over a number of years and operate it for at least a few days a week, then purchasing a machine would probably be the right answer for you. The cost of hiring a machine adds up over time. Additionally you need to ensure the availability of the machine for the length of the project. Buying the machine gives you peace of mind that it is there ready to go when you need it.
On the other hand, if it is a piece of plant that will only be used for a couple of hours a week, hiring it may be a more cost-effective solution. Arguably, the biggest benefit of equipment hire is that you only pay for what you need. Buying a machine that just sits in a yard gathering dust only costs you money. As a general rule-of-thumb, you can work on the basis that hiring equipment is about 3x more expensive than buying.
You also need to consider other costs you will come across when purchasing a machine such as insurance, repairs and maintenance and whether you need to hire an operator. Buying a new or near new machine, say 3 years old or less, can reduce the money spent on repairs and maintenance and if buying from a recognised dealer, they may include a service agreement with the purchase.
Consider Your Finances and Possible Tax Advantages
If you are looking at buying the machine, you also need to assess your current financial position. Buying new equipment outright means outlaying a chunk of capital. You need to be comfortable that you can afford the machine in your business’ current position.
Funding the machine could be a viable option to help conserve your cashflow. Rather than forking out cash to the purchase a new machine you could instead finance over a fixed term. You would then just have an easy-to-manage monthly repayment. With low interest rates and streamlined equipment finance products in the market, now is a great time to fund equipment.
Another benefit of funding the equipment is that it can provide you with tax breaks for your business. A standard chattel mortgage allows you to claim the depreciation and interest. There is also the current tax incentive for the write off for the purchase of business assets of $20,000 that the Government has extended into this financial year.
Another alternative to hiring a machine is a rental finance product. Repayments on rental products are typically 100% tax deductible and they are off balance sheet as the lender owns the equipment and you rent the asset from them. At the end of the minimum rental term you may have the option to purchase the machine should you wish to do so later down the track.
Look to the Future
You don’t need to go far to witness the enormity and scope of major infrastructure projects that are being completed in Australia. Our national population is expected to reach 35.9 million by 2050. To cope with this growth Australia has become, quite literally, a nation under construction. The 2019 budget, announced in February, confirmed that the Government has committed $75 billion over the next 10 years in transport infrastructure alone.
This is all good news for anyone in the earthmoving and construction game. The economy is strong, providing you with a certain level of security when lining up jobs. This means that now may be the right time to purchase the new machine with peace of mind that the machine can get to work on that next big project soon. By using a finance broker, we can guide you through the finance process and do the hard work for you, allowing you to concentrate on running your business.
If you would like more guidance on whether equipment hire or owning outright is the answer, Magnolia Lane Financial Services would love to speak to you. We pride ourselves on helping our clients grow and succeed. You can contact us on (02) 8287 3000 or email firstname.lastname@example.org.