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Buying, hiring? It's all about cost-effectiveness

PLANT HIRE - Hiring a machine is not always going to be the most costeffective option for contractors. Neal Walker puts the case

THERE is no simple formula nor mathematical equation that provides a clear answer to the question of whether to hire or to buy plant. But there are a number of factors that determine the probable best path, most particularly the financial status of a company, its geographical coverage, the type of machine that is required and how frequently the machine will be used.

Obviously a company that has a limited requirement for a piece of plant will find hiring the best option.

The type of equipment it requires m ight vary from job to job, for example. If a machine is likely to be used only occasionally between extended intervals, then hiring will be more cost-effective, given depreciation costs and return on investment considerations.

The hiring option will also be preferable for a company that operates throughout the UK but is based at one central location, because the cost of transport can negate the benefits of purchase.

Many established regional companies also choose to hire rather than purchase as they can eliminate their labour and spares costs, as well as minimising downtime when a machine requires maintenance.

New start-up companies may also find that hiring is the most suitable option due to cash f low issues and limited resources.

The Typical Buyer

WELL-ESTABLISHED organisations with the flexibility and resources to manage the initial cost of plant purchase comfortably may find that, over time, buying is the most cost-effective option.

Through purchase, a buyer acquires an asset and will experience the financial benefits typically associated with ownership. In the same way as buying a house, a mortgage holder owns the asset once all the payments have been made. In plant terms, this asset can be used to refinance the business, or sold to free up addit ional funds to contribute toward the purchase of newer equipment.

A typical buyer may also be a company that has facilities throughout the UK but focuses its operations on one region within a close proximity of where the machinery is stored. In addition, a buyer would typically require near-continuous usage from its machines throughout the year, meaning the money that the customer is laying out each month is being justified through its use.

Once the decision to purchase a machine has been made, there are a number of different types of pu rchasing agreements available. Specialist lenders, such as Cat Finance, are able to help at this point in providing tailored solutions that meet the needs of the customer. (See top right)

The 'Grey Area'

BUT sometimes a combination of factors will prevent a clear way forward from becoming apparent. For example, it may be that a company has a strong financial grounding and operations all over the UK, but is based at one central location.

This company may also envisage growth, in terms of the number of assignments coming in, thus requiring increased future plant usage. Detailed assessments, therefore, will need to be made as to whether or not growth and use predictions are sufficiently robust to merit a purchase.

A company may also be considering expansion into different areas of business or move away from a sector, which creates challenges for procurement departments. These situations require careful evaluation, looking at the company's needs in greater detail, including forthcoming legislation and other issues that may affect the business.

We have seen with our own products that technology is improving all the time and equipment is becoming more and more sophisticated. As a result, many companies will hire for short periods, until a new model is launched. This may be because the next model will increase productivity or be specially designed to meet emerging legislat ion.

The major ity of people would assume that plant dealers and hirers are at odds with one another. But, by addressing the actual needs of the customers, the two can work in harmony with one another. With plant hirer Hewden as a key part of the Finning Group, we believe we are in a unique position to offer impar t ial advice as to the best opt ion for customers.

There is no right or wrong answer. Hiring may be better for short-term infrequent use, whereas companies with the correct infrastructure can benefit from an outright purchase. Other companies choose to buy and 'top up' through hir ing to expand their capacity when busy.

There is no 'one size f its all' scenar io when it comes to making this decision. Decision-makers should consider the basic factors that will affect them and, if need be, seek external advice.