For uninitiated, replacing heavy machinery is a simple matter of selling old units and buying new ones. Experienced managers know better. They intuitively realize that this type of machine is costly and represents an enormous expense of limited resources. When operating a fleet of excavators, backhoe loaders, cement trucks, and similar vehicles, they must maintain constant vigilance of how these resources are spent.
Every heavy machinery company must carefully design a capital expenditure strategy that provides flexibility and prevents excessive credit. Construction equipment rental should be one of the primary considerations when creating this strategy.
An active capital expenditure strategy must reflect the short and long-term needs of the company as dictated by market forces. It is essential to know the different types of capital expenditure examples. Managers should consider their heavy equipment financing options in light of budget constraints, expectations of operational needs, and whether their resources can be allocated for better use elsewhere.
Benefits of renting construction equipment
As you might think, a construction equipment rental arrangement frees up valuable capital and provides flexibility in decision making. Such an agreement provides immediate access to new vehicles and machines with the minimal investment made. This is a huge advantage. New businesses are often starved of operating cash flow; the lease helps them conserve their resources. Even long-standing companies can take advantage of the lease by directing their resources toward areas that promise more liquidity or a higher rate of return.
Benefits of renting construction equipment
There are also potential tax benefits depending on the conditions of the lease. In some cases, the payments may be 100% tax-free (you should consult a tax advisor for advice). The lease also provides a level of protection against obsolescence, although your business exposure to this factor varies depending on your industry.
Sources for construction equipment rental agreements
Once you decide that a construction equipment rental agreement is in line with your company’s capital expenditures strategy, you can work with an independent rental broker or company, or a “captive” lessor. The broker works directly with several financial institutions and will provide them with a tentative agreement on your behalf. An independent rental company can often offer you better terms as it will work directly with you. The “captive” lessor usually operates as a subsidiary of the construction equipment manufacturer.
Build your business carefully.
When the business is doing well, the cash flow appears plentiful. But managers know that their companies are vulnerable to economic trends and changes in market demand. Quick decisions and reallocation of limited resources are often necessary to meet challenges. If a lot of capital is tied up in hard assets, managers lose the liquidity benefit. The construction equipment rental arrangement can provide valuable flexibility, giving them room to maneuver within the competitive environment of their market. This arrangement may be necessary to grow your business while keeping your options open if new opportunities arise.