THE VOICE OF THE EQUIPMENT RENTAL INDUSTRY
Cost Benefits of Rental

Cost Benefits of Rental

Rental helps companies reduce their fixed costs and staff costs and minimise the financial risks associated with owning large equipment fleets

The purchase of machinery increases the financial risk for a company and represents a significant fixed cost. By renting the same machinery, these fixed costs of ownership are transformed into a variable cost that is dependent on how much (or how little) the asset is used. This has a direct impact on a company’s bottom line and its financial strength.


Total ownership costs

In addition to the cost of the initial purchase, there are a number of other ongoing costs of ownership, such as insurance, maintenance, in-service inspection, repair, transportation and storage. These costs tend to increase over the life of the machine, and are only marginally related to its actual use. It can be very risky - if not financially impossible - for a company to own all of the equipment it needs to fulfil its workload, in particular when a company is just starting to establish itself. Obtaining credit can be difficult, and this means that it can also be difficult to set up a fleet using finance leasing alone. Operating equipment through rental dramatically reduces the amount of capital required. Although collateral security is still required, this is tied to the rental cost rather than the cost of the machine itself which are only incurred when there is a reliable, predictable source of income.

 

Opportunities derived from renting

As well as considering the difference between purchase costs and rental charges, and the reduced financial risk associated with rental, there is a bigger picture to consider: the opportunity cost in terms of the use of capital. Well managed, capital that is channelled into the core business – rather than tied up in machinery sitting in their yard – will help companies to develop and improve their profitability. Equally, rental is an excellent tool for supporting business growth and expansion, even if markets are uncertain. When companies have a portfolio of projects but not enough bank credit or capital available, rental allows them to take advantage of opportunities without undermining the strength of the company by reducing the available working capital.

 

"Rental allows companies to take advantage of opportunities by reducing the available working capital"

 


Easier and safer budgeting

Rental makes it much easier for companies to budget. While it is relatively simple to calculate purchase costs and estimate maintenance costs for the first years of service, it is neither easy to predict how much these costs will increase over time nor determine the residual value of the equipment when the time comes to dispose of it. Many of the larger rental companies today offer their customers easy access to operating data on the equipment that they are renting, which makes it easy for equipment users to track their costs. These financial considerations are the reasons why more and more companies are favouring rental as a means of managing their equipment needs.

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