Every business has equipment requirements. New businesses need basic startup gear; established companies require updated tools to grow their customer reach, support new types of projects, or replace worn-out machinery.
But while costs vary widely—from $2500 for a solopreneur’s essential office equipment, for example, to $100,000+ to equip a construction or manufacturing firm—equipment represents one of your company’s biggest business expenses.
To help keep those expenses under control, here are 3 important questions to ask when considering whether to buy, rent, or outsource equipment.
1. How long will you need the equipment?
In most cases, it will make sense to buy (or lease) equipment you’re going to need over the long term—especially if it’s essential to your core business offering.
Purchasing or leasing-to-own doesn’t just give you full, immediate access to tools that can make you and your team more productive, you can often take advantage of financing programs to spread out your payments.
If you do decide to purchase, lease, or finance equipment, make sure you:
- Take time to shop around for the best price, performance, and after-sale service
- Take the equipment’s useful life into account (you don’t want to still be paying for it after it’s no longer serviceable)
- Compare the costs of financing versus renting, since renting can mean lower payments
Renting or outsourcing can also be your best option when you only require a tool for a specific or short-term project, or when it’s likely to become obsolete (and require upgrading) quickly.
2. How often will you use the equipment?
A good rule of thumb is to consider buying equipment you plan to use or run more than about 60% of the time during business hours. For everything else, renting or outsourcing will often be the better way to go.
If it’s not yet clear how much time you’ll spend using a particular machine, renting it to start and tracking your usage will help determine its value. You should also take into account any loss of productivity your business is likely to experience as employees learn (and re-learn) how to operate gear they don’t use very often.
Both buying and renting, for example, can generate unnecessary costs if a piece of equipment:
- Is highly specialized
- Requires you to have certified or experienced operators on staff
- Will only be used for occasional projects
In cases like these, outsourcing your equipment requirements to a qualified subcontractor might save your business money. A good example would be hiring a 3D printing specialist to create your product prototypes.
3. How much will the equipment cost over the long term?
Companies will often use a cost-benefit analysis (based on a 5-year ROI, for example) to help determine whether investing in new equipment is justified.
For any equipment cost analysis you do, make sure you take all associated expenses into account, including:
- Fuel or energy requirements
- Maintenance, repair, or storage costs
- Time and cost required to train or certify users
Only then can you fairly compare these costs against the equipment’s potential resale value, how much it’s likely to contribute to your revenue, and the cost of renting over the same period.
Remember, too, that deciding to buy versus rent will have different tax implications. While rented equipment can often be written off as a business expense, for example, equipment purchases generally qualify for depreciation deductions instead.
You may also want to explore the grant and loan programs available to eligible entrepreneurs in need of equipment funding—and speak with an accountant about the financial pros and cons of buying, renting, or outsourcing.