Business growth is typically the result of careful, strategic planning, and consistency in execution. Despite that fact, the number of organizations with a formalized construction equipment acquisition plan is small; even when it comes to managing fleet age. Instead, even seasoned fleet managers will find themselves managing repair and maintenance for existing equipment rather than designing and executing a regular refresh interval. To be fair, this may be due to market volatility or budget allocation, however as expenses compound with aging construction equipment, including lost productivity due to equipment out for service, a comparative analysis of the numbers will likely demonstrate a change is necessary.
Construction Equipment Fleet Experts Agree
Construction Equipment (CE) industry researcher/writer Mike Vorster advocates for formal fleet replacement plans in his book, Construction Equipment Economics. Vorster writes: “The equipment asset in a heavy construction company accounts for about a third of total corporate assets and the cost of owning and operating the fleet is frequently larger than any other single project”, yet many firms are reactionary on their equipment replacement and acquisitions.
An Effective Construction Equipment Acquisition Plan Can Increase Profitability
Ralph Petta, President & CEO of Equipment Leasing and Finance Association outlines some compelling financial reasons why equipment acquisition and fleet refreshing can be used as a cost-saving measure, including preserving capital through sensible financing, outsource asset management — often a benefit of leases in particular, accessing better equipment, and accommodating growth, among others.
Whether To Lease or Purchase Equipment
The question whether to lease or purchase construction equipment can be answered by a quick audit of the need and existing financial state of the business:
- Is the equipment short-term (temporary need or quickly outdated – lease is optimal) or long-term (regular use, strong residual value – purchase as an asset)?
- Does your business possess the capital for an investment? Purchases often require a down payment, where a lease may be low or no money down.
- Is the need new/still developing, so long-term use may not be easily determined? A Fair Market Value lease with a buy-out option may be a cost-effective way to use the equipment for a period, and if it’s needed long term, purchase at a reduced rate at the end of the term.
If you’re in the process of developing your construction equipment acquisition plan, invite the construction equipment finance professionals at ENGS to provide insight into the various finance options available to you.