Why Rent?

Because the equipment rental industry is a new force in our economy, few businessmen are yet trained to make sufficiently complete analysis of all costs pertinent to deciding whether to buy or rent. Too often the user of equipment merely compares the dollar cost of renting with the cash price of buying. He fails to realize that the true cost of purchased equipment, during its economic life, will be many times its initial cost, when maintenance and other factors are considered. Practical considerations of whether to rent or buy include:

MAINTENANCE

BREAKDOWN

CORRECT EQUIPMENT FOR THE JOB

MINIMUM EQUIPMENT REQUIREMENTS

PERSONAL PROPERTY TAXES AND LICENSES

CONSERVATION OF CAPITOL

INCREASES BORROWING CAPACITY

LETS TAKE A BRIEF LOOK AT EACH OF THESE:

1. MAINTENANCE -- Equipment rented on a day-to-day basis includes full maintenance. The user of such equipment needs no repair shop, no spare part supply, no mechanics, and no parts supply inventory or maintenance records for it. It is important that all these costs be added to the cost of owning when deciding whether to rent or buy.

2. BREAKDOWN -- There are costs related to breakdowns of owned equipment which are not applicable to rented equipment. Virtually all equipment is subject to occasional breakdown in use. When rented equipment breaks down, it is immediately replaced by the equipment rental yard at no cost to the user. Time losses on breakdown of owned equipment as well as the cost of the repairs themselves must be considered.

3. WAREHOUSING -- Warehousing facilities are seldom needed for rental equipment. This aspect of renting has made it possible for some contractors to operate successful construction businesses with little more overhead than the cost of a telephone answering service by having equipment rental yards serve as their warehouses.

4. MOBILITY -- Equipment rentals offers the contractor or other user a mobility that could not exist with owned equipment. A contractor, for example, can bid on a job several hundred miles away, secure in the knowledge that he will find the equipment that he needs at a rental center near his jobsite. Before the rapid growth of equipment rental centers, a major argument in favor of owning equipment was availability and convenience. This has now become one of the strongest arguments against owning, since rental facilities are now almost universal.

5. COST CONTROL -- Better cost control is possible with rented equipment. Knowing the true costs of equipment owned is difficult. Rented equipment offers the user just one accountable cost figure-that shown on the rental invoice.

6. INVENTORY CONTROL -- Another advantage in renting is inventory control. Contractors in particular often find that they have less inventory due to pilferage when equipment is rented rather than owned. Although at first glance this may be strange, there is a very logical reason for it. The presence of continuous billing on any rented item tends to establish accountability for that item. The contractor who owns a great deal of miscellaneous equipment has a difficult time establishing personal responsibility for any of it. Tools for at an equipment rental center-tools which must be ultimately be returned- seem somehow to be watched with sharper eyes.

7. DISPOSAL COSTS -- It is easy to overlook the cost of disposing owned equipment. It costs money to sell any type of used or obsolete equipment. Preparing the equipment for resale, advertising and selling time are cost factors of ownership that do not occur in renting.

8. OBSOLESCENCE -- Day-to-day renting eliminates obsolescence risk for the user. Faster and better equipment is constantly appearing, as manufacturers battle for a market keenly aware of rising wage costs. Ownership involves the risk of being handicapped with equipment that is slow and unwieldy compared with newer models. On the other hand, an equipment rental yard must keep available the latest types and models of equipment.

9. CORRECT EQUIPMENT FOR THE JOB -- Ownership often forces another kind of inefficiency through use of the wrong size or type of equipment for a given job, even though the equipment is not obsolete, This can also mean additional, though hidden, costs. Rental insures the correct equipment for the job.

10. MINIMUM EQUIPMENT FOR THE JOB -- Equipment ownership becomes particularly onerous when such equipment must lie idle, as owned equipment often does from time to time. When ownership, say, of basic equipment only is combined with rental as needed, idle time of equipment is minimized.

11. PERSONAL PROPERTY TAXES AND LICENSES -- There are no personal property taxes or license costs for the user of rented equipment. On owned equipment these are substantial costs, which must be added to the cost of owning rather than renting.

12. CONSERVATION OF CAPITAL -- Renting conserves capital. It frees capital for other, potentially more profitable uses than that of being tied up in equipment.

13. INCREASES BORROWING CAPACITY -- The equipment user who rents rather than buys generally finds borrowing easier because he has a better ratio of assets to liabilities, as the equipment does not appear as a liability on his balance sheet. This means that his normal line of bank credit is not disturbed. Contractors have found this most important in securing the bonds necessary for construction work.

These are some of the points which must be considered in analyzing the cost of owning equipment. It is important that all such costs be taken into account when deciding whether to rent or buy. Simply to compare the cost of renting an item of equipment for a given period of time with the bare purchase price of that same item is not just unrealistic - it is down right naive. To be realistic, the 13 points covered must be added to the cost of ownership.

Since the equipment rental industry is a new phenomenon in our economy, it is probably not surprising that so many businessmen still fail to understand it. Some still express pride in the fact that they never rent - in the mistaken belief that renting reveals a lack of capital, or a weak financial position.

Because attitudes die hard- because there was a time when the word "rent" was itself a bad word, and renting the mark of disgrace-a certain amount of false pride in ownership still exists. Fortunately, such pride is no longer based on fact, if indeed it ever was. Some of the largest companies in the nation now rent without hesitation-when renting is more profitable than buying or leasing.

The businessman who boasts that he never rents is really revealing that he is living in the past. If he owns much equipment there certain times when some of it is idle and costing money, while rented equipment would only be a cost while actually in use. Any business today that uses rental equipment in its yearly operation, and fails to rent at least some of that equipment, has not yet learned that profits are earned by the use of that equipment, not by ownership.

Simply stated: when tools or equipment are needed for consistent use throughout the year, buy or lease them. When a need is for an hour, a day, a week, a month, or a season rent them. When in doubt, study all the costs of buying, leasing, or renting-and be guided by what is most profitable.