So, you have a big earthmoving demolition or earthmoving job. You now need to make the decision – do you hire the machinery or is it better to purchase it?
The goal of this blog is to guide you through a series of intuitive questions that will hopefully lead to the answer.
What exactly is the job? Is it a small home project that the home handyman could complete? Or is it an elaborate long-term construction project that requires long machine hours?
Do you have the skills needed to perform this project or do you need a skilled machine operator?
Is the site sensitive and requires rubber tracks on the excavator or can steel grousers be used?
What impact will hire or purchase have on your financial situation?
What is the length of this project? Hire tends to work best for shorter projects.
What is the actual total cost of owning a machine?
What is the chance of ongoing work using this machine?
Is the contract so valuable that you could pay off the machine and then have the flexibility of owning the machine in the future?
Will outside conditions such as the weather delay the project and cause you to have excessive hiring costs? Can these costs be mitigated under contract?
No one solution fits all situations. Buying the equipment that is needed can result in very high upfront costs and also results in a lot of related expenses that are included in the total cost of machine ownership. Just a couple examples are maintenance, and repairs, insurance, transportation, storage, and energy (e.g., fuel and electricity) which can exceed 100% of the average purchase price.
Another option is to look at a rent-to-own contract. Vikfin is in the business of offering its clients rent-to-own arrangements. Rent-to-own is an arrangement that provides for the rental of the equipment for an agreed period, at the end of which, the renter has the option to buy. This means that the asset is not consolidated on the balance sheet, thus protecting key debt-to-equity ratios while freeing up cash-flow for businesses to focus on their core activities.
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