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Tool #3 – Should You Empty Your Yard?

By George Hedley It amazes me the number of construction company owners who are married to their equipment. There must be something enticing about owning a lot of yellow iron, a few cranes, backhoes, or lots of trucks around to make you feel warm and fuzzy, or big and macho! To me, owning equipment is… Continue reading Tool #3 – Should You Empty Your Yard?
By George Hedley

George Hedley

It amazes me the number of construction company owners who are married to their equipment. There must be something enticing about owning a lot of yellow iron, a few cranes, backhoes, or lots of trucks around to make you feel warm and fuzzy, or big and macho! To me, owning equipment is necessary only if it makes financial sense and you can get a return on your investment.

What does it cost to own your truck?

When you figure what it really costs to own a heavy duty pickup truck to send out to your construction jobsites, it makes you think twice before investing your money into another vehicle. If you figure that a typical construction pickup only lasts around four years until you have to replace it, you can add up what it will really cost. After adding the purchase price, interest payments, insurance, gas, oil, tires, maintenance and loss of value over the life of a pickup, you’ll discover it costs over $88,000 to own and maintain a pickup over a four-year period. That works out to almost
$2,000 per month. In addition, you’ll need a down payment to purchase the truck, which ties up your working capital and makes it harder to grow your company. Plus, you are responsible for the maintenance and upkeep.

Is owning your pickup a good investment?

Can you generate enough revenue to pay for your pickup? A good businessperson wants to make a return on their investments. On equipment, you should make at least 15 to 20 percent return which would equal an additional $350 per month to own your truck and get a return. So far your truck costs you around $2,300 per month not including a markup for overhead and profit. Depending on how much markup you add to your job costs, the total final cost to own your pickup will exceed $2,500 to $3,000 per month.

Next go online and shop for a pickup truck to rent by the month. You will find quotes from $1,150 to $1,350 per month. You obviously have to add insurance, gas and oil to your budget, but not tires or maintenance. Renting a truck requires no down payment. And when you don’t need it, you can turn it back in for a few weeks or months. So what is the best way to go for your company?

What about larger, more specialized equipment?

Most contractors need certain types of equipment to do their work like skiploaders, forklifts, generators or scissor lifts. Should you own or rent? When times were great, you could keep these pieces of equipment busy and make money on them. When work is spotty or sporadic, you can’t keep them working enough to pay for themselves. It all boils down to the math. Let’s say you need a large piece of equipment to perform your type of work:

Equipment Cost Over 5 Years

  • Purchase Price $100,000
  • Financing Cost $20,000
  • Insurance 5 Years $20,000
  • Maintenance & Tires 5 Years $20,000
  • Repair Items $5,000
  • Gas & Oil 5 Years $35,000
  • Total Cost Over 5 Years $200,000
  • Return On Investment @ 15% $30,000
  • Overhead & Profit Mark-Up @ 20%
    $46,000
  • Total Cost Of Ownership 5 Years $276,000

The total cost of this equipment will cost you $276,000 to own for five years or $55,200 per year. Don’t forget the pain of putting a down payment on the purchase and how that will affect your cash flow. The key is to now determine if you can make it worthwhile to own it, maintain it, store it, deliver it, service it, secure it, insure it, finance it and deal with the hassle of owning it. The deciding factor is how many hours you can keep it busy on the job site.

By doing the math, it’s easy to determine if you should own or rent equipment. If you can keep it working enough billable hours per year to make money and cost you less than renting, it makes sense to own equipment. Call the local rental companies to compare your cost of ownership to their rental rates. I’m sure you’ll discover which equipment you should or shouldn’t own. Sell the unprofitable equipment, take the cash and boost your bottom line by investing it in a strong management team or assets like real estate that grow in value every year.

Also think about what equipment you can own that doesn’t require a lot of maintenance where you can get a big return on your investment. Used job office trailers only cost $5,000 to $7,500 to buy. And you can rent them to your projects at $350 to $450 per month. That is more than a 75 percent annual return on your money. Take a hard look at your equipment program. Get rid of your underutilized equipment. Do the math and boost your bottom line.

George Hedley is a licensed professional business coach, popular professional speaker and author of “Get Your Business to Work!” available at his online bookstore. He works with contractors to build profitable growing companies. To request your free copy of “Profit 101 For Contractors,” sign up for his free monthly e-newsletter, hire Hedley to speak, be part of his ongoing BIZCOACH program, or take a class at Hardhat BIZSCHOOL online university, visit www.hardhatpresentations.com or email gh@hardhatpresentations.com.