In business, one must balance the needs of today with the needs of tomorrow. This is a skill that’s generally learned on the go, yet no one really has time to wait for the relevant lessons to sink in. If you can’t make the right decisions to keep your business afloat today, it will close. If you can’t make the right decisions for the future, you might as well not open the doors. There’s not much room for error here, so it’s perhaps best to think about that balance immediately. One area where the difference in planning becomes abundantly clear is in the difference between buying and renting equipment.
The Opportunity Cost of Equipment
Equipment is a major capital investment. No matter what line of business you’re in, you’ll need something that’s going to involve a major cash outlay – vehicles, electronics, maybe even construction equipment. When you have to put your money to work, you’re really trying to figure out the opportunity cost associated with the expenditure. You’ll be asking not whether it’s a good idea to purchase the equipment, but rather what typing up that money will mean for you now and in the future. Renting and buying both have benefits and drawbacks, but one will usually end up outweighing the other.
Buying vs. Renting
When you buy equipment, you commit yourself to a large up-front expense. This expense leaves you with an item that may or may not lose value over time, but one that will no longer require a capital expenditure after purchase. In other words, you’ll take a financial hit today but you’ll save yourself money in the future.
Renting is the opposite. You’ll spend less in the short-term, but end up with greater costs – and less equity – in the future. The choice generally comes down to both what you can afford and what you’re looking for with equipment. If you need something for the future, buying is where it’s at. If you need something for the short-term, though, renting is almost always smarter.
Balancing your needs today with your needs in the future will always be difficult. While there might be simple answers to be found when buying or renting equipment, not every choice will be so black and white. You should always consider what the cost of doing business today will be as well as what that expenditure will mean for your future. For instance, a company with a large client base and room in their budget might be in talks with a company like Kevrek (Ricon) Australia Pty Ltd to buy a lift truck, but a smaller company with less free capital will definitely be looking for lease options. When you can see the cost of each opportunity clearly, you can make a more informed choice.