Knowing When to Pull the Trigger on an Equipment Purchase

Sometimes renting equipment for a job is a good option. But there comes a time when making an outright purchase would be better.

Knowing When to Pull the Trigger on an Equipment Purchase

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Within a year of launching his sewer and drain cleaning business, Mark Joski began to diversify. He first added excavation services and rented excavation equipment as needed — a skid-steer, a mini-excavator — until he began to question the economics of renting the machines.

“I decided if I was going to use a piece of equipment more than two or three times a year, it didn’t pay to rent it,” says Joski, owner of Joski Sewer Services in Green Bay, Wisconsin.

Today Joski’s excavation equipment includes a John Deere 50 mini-excavator, a Komatsu 138LC excavator, a Ditch Witch FX30 trailered hydrovac unit, and a CASE skid-steer, as well as two dump trucks and various excavator attachments.

How do you know when you’d be better off purchasing a piece of equipment versus renting it? Here’s some advice courtesy of the Association of Equipment Manufacturers.

1. You’ve rented the machine more than you anticipated.

If you have been a renting machine for three or six months, it’s time to consider whether rental is still the best option. You may be spending more than you anticipated.

Dealers often provide an incentive to purchase by allowing customers to apply their rental payments to the down payment on the new machine. Whether purchasing equipment with cash or financing, buyers should consider owning and operating costs over the life the machine. This includes not only the initial price of the equipment but the cost of financing, insurance, maintenance, repair and fuel expenses. Except for fuel costs, all of these costs apply only to ownership. The residual value of the equipment at the point you expect to sell it should be subtracted from the costs.

2. You could benefit from a tax break.

Tax incentives may tip the scales in favor of equipment ownership. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year, up to $1 million.

Businesses may also take 100% bonus depreciation on qualified property both acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. Discuss a pending purchasing with your accountant to determine how you can benefit from the tax advantages and what the impact will be on your balance sheet.

3. Availability is an issue.

Availability can play into ownership decisions. If demand is high, you may have to take what the dealer or rental firm has. But an owned machine can be specified to how you want it.

Equipment operators may not be as satisfied or productive in a machine without an air-conditioned cab or a radio, or one that is not the brand they are familiar with. The more specialized the machine, the more difficult it may be to find rental inventory. Ownership provides 24/7 access to the equipment and that means you can react to unexpected changes or new opportunities. Ownership of equipment may provide clients with confidence in your firm’s ability to handle the work.

4. You have the resources to monitor and maintain equipment.

Downtime is a profit-killer for any equipment-intensive business and when you own equipment you take on that risk. However, if you are confident in your ability to maintain the equipment, either through your own staff or your dealer, that risk can be minimized. 

With GPS and telematics, fleet managers can better monitor the location and condition of owned machines. In addition, these tools can help you identify opportunities to reduce idle time and save on fuel costs.

There’s a lot to consider when making acquisition decisions and no one formula will give you the answer. However, if you see the signs that favor ownership, take time to do the math, meet with your accountant and dealer, and decide on the best path forward.



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