Construction Company Running Cost Benefit Analysis: Renting Vs. Purchasing Excavators

The delicate balance between buying equipment and renting them on a daily basis depends on a variety of elements that must be taken into deep consideration prior to making the decision. Among the biggest factor that must be considered prior to making the decision to buy or rent is the impact that the purchase or long-term rent will have on the working capital of the company. It would however only be logical that smaller equipment that are used frequently be purchased outright as it will only be a matter of time before they would cover their purchase cost and start generating profit. Nevertheless, some equipment owns up to hefty price tags that strains the finances of the business. This article looks into a specific area within the realm of the construction industry involving one of its most essential equipment, the excavator.

Excavators & Construction

Excavators are critical to just about any construction project imaginable. These machines are also capital intensive and could have an impact on the capital structure of the company, especially those categorised as SMEs. These construction companies categorised as SMEs have limited capital to work with and maintaining cash flows in the positive is a critical aspect of the business that should never be undermined. Hence purchasing expensive equipment such as excavators or even mini excavators should be given careful consideration whether they should be purchased for projects or taken on hire. Excavators for hire on either a daily or weekly or even monthly basis will eventually sum up to a single cost amount that should be contrasted with the total income (not profit) generated from the project. Subsequently after deducting all the other variable cost (including the cost of the excavator or mini excavator), the income minus the cost would present the profit, from which the `return on investment’ on the excavator can be derived. This R.O.I calculation should also be reviewed from a long and short-term perspective from which an assessment of whether buying or hiring a mini excavator for example should be made in order to determine the best strategy for a project. If the project is for a lengthy duration such as 12 months or longer, then perhaps buying an excavator for example would be the better option as opposed to getting an excavator hire machine.

Cost Effectiveness 

In essence, how cost effective the management of a construction company is playing an integral role in how much profit they are able to extract from each project that they undertake. Hence, it becomes crucial for ROIs to be justified within a financial year based on how resources are distributed which includes finance and as well as raw material and equipment taken on hire or purchased. As an example excavators for rental on a weekly basis could potentially return higher R.O.Is compared to buying them or even aligning one project with another through a meticulously laid out schedule are critical success factors. This could even mean taking the weather into account if it must be and rescheduling construction work outdoors and focus on indoor work if any are available.