As a general contractor needing to fulfill your clients’ needs long term, equipment is a necessity whether it is leased or bought. This machinery allows site workers to do multiple tasks in a fraction of the time, but if financed incorrectly, it can put an organization at risk. There’s not a clear answer whether it is smartest to lease based on project need or buy up front; however, there are distinct pros and cons of each side. These points will help you determine which option makes the most sense for your circumstances.
Pros of Buying Construction Equipment:
If the capital is available, take the plunge. You won’t have to worry about availability and you will be prepared for any need that may arise. Field staff can become experts at operating a single machine rather than having to adapt to each new version that is leased or rented for a short time. This increases output potential in less time.
Cons of Buying Construction Equipment:
The capital requirement for buying equipment extends much farther than the cost of the equipment itself and its depreciation. Owners must manage transportation, storage, fuel, insurance, and maintenance of the equipment. Although an organization may be able to take on the initial cost, they must factor in the total cost of ownership to assess the true cost. This can be hefty, however if your organization has the capital to handle the requirement, it’s worth the ease.
Cowin Equipment Company makes a valid point that all machines aren’t the identical in the big picture. “One immediate implication is that the lowest purchase price isn’t necessarily the best. While it makes a difference if all other factors are considered equal – after all, Machine A is a better choice than Machine B if Machine A has a lower sticker price and the two machines are otherwise the same – total cost of ownership comes into play because machines aren’t all the same.”
Pros of Leasing Construction Equipment:
Leasing can make more sense for a contractor with an inconsistent workload. If there are long periods that a company goes without work, there would be too many costs associated with storage and maintenance that a company would have to handle on their own if they purchased equipment. If equipment is leased, the leasing company handles routine maintenance and storage as a part of the arrangement.
Cons of Leasing Construction Equipment:
Although they are cheaper in the short term, over the longer-term picture, leasing can be extremely costly. Also, there may be availability limitations based on what the leasing company has left during a contractor’s time of need. It also isn’t uncommon for a leasing company to promise a bit more than what they can actually provide. This is something to watch out for, and not always the case.
For those who find themselves with uncertainty between buying and leasing may find benefit from a decision making matrix to understand their specific need state and best-fit match.