Starting out in the building game? Want to buy those multi-million rand on-site toys and trinkets up-front? You might think different after reading this.
Construction sector leaders are under pressure to reduce capital expenditure. In June 2016, according to Stats SA’s latest findings, local building businesses spent more than R2 billion on rental equipment like plant and yellow metal machines.
In 2015, these companies were spending less than R1 billion per month on rental equipment. With more construction businesses seeking to hire equipment rather than buy them, there are a few good reasons why you should do the same when starting a construction firm.
Related: 4 Things you must have in place when starting a new construction company
“Time is money in the construction business,” says Gill Devine, vice president of western European operations at Synchron. “Any interruption – from equipment breakdowns to required maintenance – can be troublesome and costly. And projects can take a serious hit for each day that a revenue-generating piece of machinery is out of service waiting for a replacement part.” If you rent, a replacement machine can arrive on-site in hours, instead of you dealing with repairs or maintenance on your own for days.
If you’d like to keep more cash in your bank account instead of spending it on construction equipment when starting up, consider these five key points:
1. Don’t pay for idle equipment
“Don’t pay for your equipment when you are not using it,” says Rachel Burger at TheBalance.
She says if your construction site needs specific equipment for a short duration only: “That equipment is going to stand idle afterwards if you buy it. Let the rental company worry about finding other users.”
2. Use cutting-edge equipment
Because the construction equipment rental market is quite competitive, it drives rental companies to offer the latest-gen machines to get building jobs done faster and more efficiently. “Up-to-date equipment usually also means easier compliance with emissions [and safety] regulations,” Burger adds.
3. Remove key costs from your ledger
When you decide to rent equipment instead of buy it, you’ll save cash in two key areas.
“Many rental contracts make provision for maintenance, repairs and spare parts,” Burger says. “Check the contract before signing to see what is included and remember that you may also make further savings by not having to hire or train your own in-house [maintenance] specialists.”
Also, construction equipment can only weather a certain amount of time parked outside. “Storage facilities to keep bigger pieces of equipment tucked away when they are out of use can be a major capital expense in themselves,” she says. “But this is another worry you can simply hand off to a rental company.”
Related: 3 Reasons why health and safety protocols are essential
4. Push your (construction) boundaries
If you buy a particular crane or dozer, chances are that crane or dozer is going to be used in one way all the time. It can’t offer you variety in terms of construction sites that are awkward or hard to reach. But, if you rent, you can have access to the right tools, at the right time, to go beyond what other companies are restricted by in terms of tech access.
Burger adds: “Some projects require specialised equipment if they are to be done correctly and efficiently. Buying the equipment may not be economically viable. But, rental can let you expand your project horizons while staying profitable.”
5. Have money for (future) opportunities
“If you buy instead of rent, you tie up capital that is then no longer available for other projects. That can cost you opportunities you would have liked to pursue. You can keep your options open by renting instead of buying,” Burger says.
Having money in the bank gives you an opportunity to take on more challenging projects, with bigger wins and margins as a possibility.
Standard Bank’s construction sector specialists can advise you on the best approach when it comes to acquiring equipment for your construction start-up. You can still choose to buy equipment through the bank’s flexible financing solutions, or you can investigate leasing and renting equipment instead. The choice is yours, but if you want to move forward cost-effectively, give Standard Bank a call today.