When you are in need of equipment for your company or a project it is not difficult to get offers from different dealers or manufacturers. They all have the best product , the cheapest or with the best productivity. But when it comes to acquiring such pieces of equipment many do not know the (financial) consequences. We explain the difference between buying new, buying used, leasing and renting.
Financial consequences
We are not touching the subject “maintenance” nor “cost of ownership”. We will just briefly touch on the pros and cons of buying versus renting. It does have consequences for your business.
Buying new
When buying new equipment you definitely have the full attention of your local dealer or manufacturer. These companies prefer to sell new equipment. New equipment is expensive but has indeed a couple of advantages of buying.
- Dealer / manufacturer support
- Parts availability guaranteed
- Can be customized to your needs with factory fitted options
- Warranty (sometimes up to 5 years)
- Image towards clients (looks new and good)
- Peace of mind (assuming new equipment has less downtime)
- State of the art product latest (emission) innovations
Disadvantages of buying:
- Expensive and sometimes difficult to raise funds
- Delivery time (large equipment is generally not produced for stock)
- Capital expenditure puts a strain on your cash flow and working capital
Leasing new
As an alternative to buying new and to overcome the disadvantages you could lease your equipment. There are two kinds of leasing , “operational lease” and “financial lease”.
Operational lease means using the equipment for a shorter period of time than its economic life. After the lease period it can still be used and there is the possibility of taking ownership for a certain amount (residual value). Financial lease is just financing the equipment over a period of time as long as its economic life. After the financial lease period the lessee becomes owner of the equipment.
Advantages of leasing:
- You have new equipment at your disposal
- No residual value risks
- Working capital is not affected and can be used for other important business
- You can depreciate the equipment and lower your net business result (fin. lease)
- Transparancy in your cost structure, no surprises, “off-balance” (oper. Lease)
Disadvantages of leasing:
- Delivery time can still be an issue
- High expenses when terminating the lease contract prematurely
- In the end , borrowing money costs money
We have not yet discussed Leasing used equipment. This is possible under certain conditions.
Buying used
For those who do not have the capital strength to buy new equipment or are not able to lease or simply do not want a new machine for any other reason, there is the possibility to buy a used piece of equipment. Of course there are advantages and disadvantages.
Advantages:
- Cheaper to purchase, no financial restraints from the bank or lease firm
- Available immediately
Disadvantages:
- No warranty in most cases
- Age, hours, looks , it remains a used machine with less image on the jobsite
Make sure you know your equipment before buying used. Independent inspectors can help you.