Construction Equipment Leasing and Your Capital Expenditure Strategy
To the uninitiated, replacing heavy-duty machines is a simple matter of selling the old units and buying new ones. Experienced managers know better. They understand intuitively that this type of machinery is extremely expensive and presents an awful outlay of limited resources. When operating a fleet of excavators, back hoe loaders, cement trucks, and similar vehicles, they must maintain constant vigilance over how they spend those resources.
Every business that relations upon heavy machinery must carefully design a capital expenditure strategy that provides flexibility and advances an overextension of credit. Construction equipment leasing should be a preliminary consideration when creating such a strategy.
Below, we'll explore the challenges that managers and business owners confront when they need to replace heavy-duty assets. We'll also clarify the decision between construction equipment leasing agreements and purchasing such assets outright.
Challenges Of Replacing Heavy-Duty Assets
Because each vehicle or piece of machinery represents such a large outlay of capital, fleet mangers must approach the replacement of those assets carefully. Technological obsolescence, variances in market demand, and long-term business objectives must be considered along with budgetary constraints. Much depends upon the industry in which the assets are deployed.
For example, vehicles that are deployed in quarries in order to fulfill long-term excavation or extraction projects have a usable lifespan that is easy to calculate. As long as they are maintained properly, the vehicles' capacity and the amount of materials extracted from the quarry are the most important considerations. By contrast, projects that are focused upon building – or rebuilding – infrastructure are far more susceptible to market variables.
An effective capital expenditure strategy should reflect the short and long-term needs of the business as dictated by market forces. Managers should consider their heavy equipment finance options given their budget limitations, forecast of operational needs, and whether their resources can be allocated to better use elsewhere.
Benefits Of Construction Equipment Leasing
As you may suspect, a construction equipment leasing arrangement frees up valuable capital and offers decision-making flexibility. Such an agreement provides immediate access to new vehicles and machinery with a minimal upfront investment. This is a significant advantage. New businesses are often starved of operational cash flow; A lease agreement helps them conserve their resources. Even longstanding companies can leverage a lease by directing their resources towards areas that promise more liquidity or a higher rate of return.
There are also potential tax benefits depending upon the circumstances of the lease. In some cases, the payments may be 100% tax deductible (you should consult a tax advisor for advice). A lease also provides a level of protection against obsolescence, though your business's exposure to this factor will vary based upon your industry.
Sources For Construction Equipment Leasing Agreements
Once you have decided that a construction equipment leasing agreement is consistent with your company's capital expenditure strategy, you can work with a broker, independent leasing company, or a "captive" lessor. A broker works directly with a number of financial institutions and will present a tentative agreement to them on your behalf. An independent leasing company can often provide better terms as they will work directly with you. A "captive" lessor typically operates as a subsidiary of a construction equipment manufacturer.
Building Your Business Carefully
When business is good, cash flow looks plentiful. But, managers know that their companies are vulnerable to economic trends and changes in market demand. Quick decisions and the reallocation of finite resources are often required to meet the challenges. If too much capital is tied up in heavy-duty assets, managers lose the benefit of liquidity. A construction equipment leasing arrangement can provide valuable flexibility, giving them the room to maneuver within the competitive environment of their market. Such an arrangement can prove essential to growing your own business while keeping your options open in the event new opportunities emerge.