Because the equipment rental industry is a
new force in our economy, few businessmen are yet trained to make
sufficiently complete analysis of all costs pertinent to deciding
whether to buy or rent. Too often the user of equipment merely compares
the dollar cost of renting with the cash price of buying. He fails to
realize that the true cost of purchased equipment, during its economic
life, will be many times its initial cost, when maintenance and other
factors are considered. Practical considerations of whether to rent or
buy include:
1. MAINTENANCE
Equipment rented on a day-to-day basis includes full maintenance. The
user of such equipment needs no repair shop, no spare part supply, no
mechanics, and no parts supply inventory or maintenance records for it.
It is important that all these costs be added to the cost of owning when
deciding whether to rent or buy.
2. BREAKDOWN
There are costs related to breakdowns of owned equipment which are not
applicable to rented equipment. Virtually all equipment is subject to
occasional breakdown in use. When rented equipment breaks down, it is
immediately replaced by A Rent-all Shop, Inc. at no cost to the user.
Time losses on breakdown of owned equipment as well as the cost of the
repairs themselves must be considered.
3. WAREHOUSING
Warehousing facilities are seldom needed for rental equipment. This
aspect of renting has made it possible for some contractors to operate
successful construction businesses with little more overhead than the
cost of a telephone answering service, by having equipment rental yards
serve as their warehouses.
4. MOBILITY
Equipment rentals offers the contractor or other user a mobility that
could not exist with owned equipment. A contractor, for example, can bid
on a job several hundred miles away, secure in the knowledge that he
will find the equipment that he needs at a rental center near his job
site. Before the rapid growth of equipment rental centers, a major
argument in favor of owning equipment was availability and convenience.
This has now become one of the strongest arguments against owning, since
rental facilities are now almost universal.
5. COST CONTROL
Better cost control is possible with rented equipment. Knowing the true
costs of equipment owned is difficult. Rented equipment offers the user
just one accountable cost figure-that shown on the rental invoice.
6. INVENTORY CONTROL
Another advantage in renting is inventory control. Contractors in
particular often find that they have less inventory shortage due to
theft when equipment is rented rather than owned. The presence of
continuous billing on any rented item tends to establish accountability
for that item. The contractor who owns a great deal of miscellaneous
equipment has a difficult time establishing personal responsibility for
any of it. However, rented tools which must be returned are watched with
sharper eyes.
7. DISPOSAL COSTS
It is easy to overlook the cost of disposing owned equipment. It costs
money to sell any type of used or obsolete equipment. Preparing the
equipment for resale, advertising and selling time are cost factors of
ownership that do not occur in renting.
8. OBSOLESCENCE
Day-to-day renting eliminates equipment obsolescence for the user.
Faster, safer, and better equipment is constantly appearing in today's
market. Ownership involves the risk of being handicapped with equipment
that is slow, unsafe and inefficient when compared with newer models.
9. CORRECT EQUIPMENT FOR THE JOB
Ownership often forces another kind of inefficiency through use of the
wrong size or type of equipment for a given job. Even though the
equipment is not obsolete, this can also mean additional hidden costs.
Renting insures the correct equipment for the job.
10. MINIMUM EQUIPMENT FOR THE JOB
Equipment ownership is not cost effective when equipment is idle. When
ownership, of basic equipment is combined with rental as needed
equipment, idle time is minimized.
11. PERSONAL PROPERTY TAXES AND LICENSES
There are no personal property taxes or license costs for the user of
rented equipment. On owned equipment these are substantial costs, which
must be added to the cost of owning rather than renting.
12. CONSERVATION OF CAPITAL
Renting conserves capital. It frees capital for other, potentially more
profitable uses than that of being tied up in equipment.
13. INCREASES BORROWING CAPACITY
The equipment user who rents rather than buys generally finds borrowing
easier because he has a better ratio of assets to liabilities, as the
equipment does not appear as a liability on his balance sheet. This
means that his normal line of bank credit is not disturbed. Contractors
have found this most important in securing the bonds necessary for
construction work .
These are some of the points which must be
considered in analyzing the cost of owning equipment. It is important
that all such costs be taken into account when deciding whether to rent
or buy. Simply to compare the cost of renting equipment for a given
period of time with the bare purchase price of that same item is not
realistic. The 13 points covered above must be added to the cost of
ownership.
Simply stated: when tools or equipment are needed for consistent use
throughout the year, buy or lease them. When a need is for an hour, a
day, a week,a month, or a season rent them. When in doubt, study all the
costs of buying, leasing, or renting-and be guided by what is most
profitable.
