Equipment: To Hire Or To Buy?

Running a business takes time, money and resources. Ensuring you’ve got the appropriate tools and equipment for your needs and budget will entail a series of difficult decisions… and one of the hardest is: hire or buy? Stick with us as we help you think through your options.

Needs & Wants

Most businesses are strapped for cash… especially in 2020! So, when your focus is on maintaining cash flow, it can be useful to write up separate lists for your wants and needs. The ‘needs’ list contains what you simply can’t operate without, while the ‘wants’ makes up things that aren’t critical, but which you believe will help to improve your business operations.

Once you’ve written out your lists, put them to one side. Review them, ideally with a partner, and focus on how well your long-term needs and wants relate to your upcoming projects. You’ll likely find that you need to move some items between the lists and remove others entirely.

The object of this exercise is to help you form an accurate assessment of your requirements. You’ll need to go round the loop a few times to build up a clear picture.

The 70 per cent rule (and some notable exceptions)

As you probably guessed, the needs list introduced in the last section tends to correlate with purchases and the wants list with hires. It’s a slightly more sophisticated version of an old-fashioned rule-of-thumb, which goes:

Do I need this item on at least 70 per cent of my jobs? If NO, hire. If YES, buy.

Of course, rules-of-thumb require personal interpretation. Before you start working down your NEEDS list with a company credit card, give some thought to the following exceptional circumstances. Do any of them apply in your case?

  1. You need flexibility – The fact that any given item is #1 on your NEEDS list doesn’t mean that the same equipment will be appropriate for every single job. No two projects are the same, and hiring enables you to spec the ideal tool for the project at hand.
  2. You want to try before you buy – On paper, a piece of equipment might look like the ideal solution for your needs. However, in practice, it may not fit all of your requirements. Hiring gives you the chance to check the suitability of the equipment before you lay out your cash.
  3. Send the right impression – Hire gear tends to be this year’s model, clean and well-maintained. If you want to impress an upmarket client, hiring your plant equipment is a good way to enhance your image.

Don’t forget those hidden costs

If you’re attempting a cost-benefit analysis, you’ll need to take into account all the hidden costs associated with ownership. You’ve likely considered maintenance bills already, but how about storage? Commercial rents are cheap, and storing expensive plant equipment will entail both security and insurance costs.

Talk to your accountant

For a really hard-nosed take on the ownership debate, talk to your finance team! They’ll likely favour rentals because they’re easy to keep track of. But, as well as stating their wish to avoid the drudgery of maintaining asset registers and calculating depreciations, your finance team will probably cite two further points for you to consider — one favouring hire, the other favouring ownership.

  1. Hiring frees up cash reserves – Purchasing will mean capital outlay. Hire enables costs to be spread over time, freeing up capital for investment elsewhere across your enterprise.
  2. Depreciation helps your bottom line – Equipment can lose value quickly. Depreciation can work to your benefit with the taxman through deductions and delayed payments.

If you’d like to find out more about Treloar’s hire and purchase options, get in touch with us on 01264 243116 to speak to a member of the team.

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