When you procure your material handling equipment you assume the cost of the equipment (or a portion of it) and service and maintenance costs. How you procure your equipment though has varying impact on your bottom line depending on equipment usage and the financial structure of your organization. This month we take a look at various means of procurement and potential impact to your operation and financial condition.
Rental – Renting lift trucks and other material handling equipment has been utilized by most companies as a way to augment fleet needs during peak seasons or when specific equipment is needed for short term projects that the user does not own or operate. However we have noticed more people renting equipment for longer terms and long-term-rental has been a fleet procurement strategy for some organizations for a few reasons.
- Budgeting – No surprise costs. Most maintenance and repair costs are the burden of the equipment owner, or lessor. Renting forklifts usually results in one monthly payment and when service or repair is needed, the owner comes to the lessee’s location and performs repairs.
- Ease of Procurement – Rental equipment is usually readily available. No waits for production lead times.
- Flexibility – If needs change, equipment can be returned or swapped out for other units as needs change.
- Obsolescence – At the end of the rental period, you’re not stuck with equipment you no longer need or can be replaced with more modern units with more up-to-date features.
Leasing – Like renting, you enjoy some of the same benefits as leasing, but leasing equipment usually requires a longer-term commitment and agreement to keep the equipment. In return for that commitment, the rates are normally lower than rental rates. Leasing units has the flexibility of performing routine maintenance and repair on your own, or Full Maintenance Agreements can be added that will result in the same consistent monthly payment as renting.
The impact of leasing or renting on your bottom line is usually the same. Operating leases and rental payments are usually 100% deductible as business expenses. Of course we always recommend you consult your tax professional for your company’s status with regards to leasing and renting equipment.
Dollar Option Leases – These types of leases are typically viewed as purchases, but do give the lessee the option of simply returning the equipment with no obligation at lease-end. They also allow for the lessee to obtain late-model equipment with little or no down payment. These leases can include maintenance or full service agreements to obtain consistent monthly payments.
Purchasing – For companies with lighter-use operations that have a very low potential for equipment obsolescence, this is usually the method of choice for procurement. Whether it is a cash purchase or financing the purchaser takes possession of the equipment and is responsible for all maintenance and repair. However, maintenance and full-service agreements can be included in purchases to smooth out the monthly maintenance and repair expenses. For heavy-use operations, purchasing is usually not recommended as the equipment will rarely outlast the finance period.
The method of equipment procurement varies depending upon your company’s operation and financial status. For companies that prefer to utilize capital on other areas of business development, leasing or long-term renting may be the preferred method of procurement. While companies that can utilize equipment for many years, and have plenty of available capital, purchasing may be the best method.
We recommend that you refer to your tax and accounting professional for your best method. There are sometimes incentives that might make the decision more complex, such as the governments Section 179, that allowed for accelerated and immediate depreciation.
Regardless of your method of procurement, we would appreciate the opportunity to present our new equipment line-up as the equipment that best suits any operation, whether you rent, lease or buy your equipment.