To buy or not to buy…that is the question. Or perhaps the question is to buy, to lease, or to rent? When it comes to your fleet and the equipment needed to get the job done, the decision to buy, lease or rent will vary greatly based on various factors
Below are some of the pros and cons of each option as well as when each method of procurement is ideal.
Buying
Deciding to purchase equipment outright really depends on your utilization of it and if you are capable of keeping it maintained.
“You’re not beholden to any agreement to turn the equipment in and can build some equity (particularly for specialty equipment) and it’s always available,” says Josh Flynn, CEO of Power Equipment Plus, based in East Hampton, New York.
Flynn, who was also previously the CEO of Seabreeze Property Services in Portland, Maine, says when he led Seabreeze, they would buy all their handheld equipment and larger pieces like bucket loaders.
“Each year, I would ask for our rental transactions from the various dealers/rental houses and analyze what we had rented,” Flynn says. “We then could identify trends in the types of work we were doing and what types of equipment we were renting. If it seemed like we were renting something quite a bit and the rental charges started adding to, say, maybe 40% or higher of the purchase value, we’d consider adding it to our fleet.”
Aaron Griffith, director of professional dealer sales with Stanley Black & Decker, advises reviewing the hours a month or year that a rented piece of equipment is being used when deciding whether to buy.
“If it used 50% of billable hours, you may consider purchasing,” Griffith says. “Another way to look at it is the yearly revenue with the piece of equipment. Generally, if you can pay for the piece of equipment in two to three years, it would make sense to purchase.”
Seth Kehne, president of Lawn Butler, based in Knoxville, Tennessee, says they purchase the vast majority of their equipment and maintain it in-house. He says it was financially best in the long run for them to own everything in their fleet.
“When you have a good maintenance program, long-standing contracts, and you plan to keep your equipment longer than the warranty period, then it makes sense to buy,” Griffith says.
Kehne notes they will buy a piece of equipment that they’ve been renting when the amount they’re spending on the rental is equivalent to what their depreciation schedule would be for each month.
“It can’t be just barely more because to own, it’s not just depreciation,” Kehne says. “Then you have maintenance that you have to do and insurance and that kind of stuff.”
Leasing
Choosing to lease can be an attractive option if you prefer to have newer machines in your fleet and don’t want to handle a lot of maintenance.
“You may lose equity in this situation, but you’re able to flip into the latest and greatest every few years, meaning you’ll always be under warranty and avoid major repairs, as well as have high up time due to the youth of the machine,” Flynn says.
Flynn says Seabreeze would lease equipment when the terms from the dealer or manufacturer made it advantageous to do so.
“Things like maintenance programs and automatic buy-back options with strong residuals made this option attractive,” Flynn says. “It gave us the ability to have lower monthly payments but sacrificed equity.”
Leasing can also serve as a steppingstone between renting and purchasing. Griffith says a major benefit of leasing is the ability to stay under warranty.
“By doing this, you will maximize your uptime and reduce large repair costs that come outside of warranty,” Griffith says. “As you are growing your business, leasing can give you more equipment with less risk and exposure than outright purchasing. All leases will have a buyout option at the end of the lease term to purchase the equipment.”
Kehne says the only time they will lease equipment is if they have a contract with an end date.
“Rather than buying and then having to resell, we would only lease if we knew we were only going to use it for a few years,” Kehne says. “We just found that leasing is not financially the best decision. It’s good for your balance sheet. Especially if you need to look at things in the short run, leasing is great, but it’s almost never good for us.”
Renting
Renting is the best choice when you have an inconsistent need for a piece of equipment. Kehne says they will only rent machines they are using short-term.
Griffith agrees that rentals work out best for short-term contracts where you aren’t sure of their longevity.
“Another time is for specialty equipment that maybe you only need for one job,” Griffith says. “Also, if you have an unfortunate lengthy repair with a machine, it may make sense to ask your dealer about any rental products they may have.”
Flynn says Seabreeze rents items like stump grinders, compressors, lifts and aerators.
“We rented equipment that was either special to a particular job and we weren’t sure we would see another job like that in the near future or if it was a hyper-seasonal item,” Flynn says. “Renting also allowed us to have someone else maintain the equipment and not worry about storage or upkeep. The financial situation around renting mattered a lot because if you only needed an item for a day or two for a few hundred dollars that made a lot more sense than buying it for a few thousand or more.”
However, one of the major drawbacks to renting is possible issues of availability of the machinery you need.
“One of the dangers of renting is that other people are too, so planning ahead is really important to make sure the equipment is available,” Flynn says. “We have some disappointed customers sometimes when they don’t plan ahead and can’t get a rental on the day they need it. We can’t carry multiples of everything to hedge against that situation.”
