The pros of hiring fleet machinery has been creeping into the eyeline of many business owners over the past decade, and for good reason. Back in the day, if you owned a business and needed machinery – i.e diggers! – you’d probably go and buy some. But owning your fleet is quickly becoming labeled as an ‘old school’ approach and hire companies are quick off the mark to explain why this might have some truth behind it. Like us here at Rockthron, we are open to a modern and flexible outlook on fleet management, especially since the pandemic has unearthed new uncertainties and financial predicaments.
Pros of owning
There is no right or wrong way to run a business, and many companies are still proud fleet owners. The Royal Mail for instance own one of the most impressive in the UK; The Red Fleet consists of a whopping 45,200 vans and trailers and counting! Here are a few reasons why owning your fleet is beneficial:
- You have a tangible asset. This means that once you own that fleet, it is yours to do with as you please. It is good to have large financial assets under your business so that your balance sheet will look nice and healthy which is essential if you’re looking to secure finance for future growth.
- It’s at your discretion to keep the machinery in good order. You can install the standards of driving & maintenance etiquette into your drivers and monitor it yourself. Essentially you have ultimate control over your machines.
- Currency. You get some cash return when you sell up. Although the monetary figure is not static, you will most likely get a healthy sum of money at the end which you can shovel back into the business however you see fit.
Pros of hiring
So why borrow, not buy?
- You won’t pay depreciation. Not ever. That’s up to the provider. Although having a tangible asset can look pretty on your balance sheet, it does regrettably come hand in hand with risk. If you own your plant machinery, it is inevitably going to depreciate. The money calculator.com estimated that even a standard short wheelbase transit depreciates on average an ugly 29 percent a year within the first 3 years when bought from new. Sounds a bit painful doesn’t it?
- It’s worth considering too, that if you own your asset and it gets damaged or your employee hasn’t kept up with the vehicle’s preventative maintenance, the market value might suffer. Your hire provider will be contractually & lawfully obliged to keep your fleet in tip top shape.
- You can hire what you want, when you’d like it, for as long as you need it. One of the biggest benefits to business owners is the flexibility factor of hiring. If you were an archaeologist on a dig for instance, you might only need a digger for 6 months at a time. If you owned your plant machinery in this instance, that 6 month period in which it’s not in use will still cost you in depreciation.
- Tax, Insurance, Warranty, MOT & Servicing: All taken care of by the hire company. This is a HUGE time saver for your fleet manager. We can hear their sigh of relief from here! This will also remove any liability of corporate manslaughter.
- Contingency plan & fleet management – we all know that vehicles let us down from time to time. Most hire companies will have a strategy in place to get your project back on track if machinery fails you.
- Improve your cash flow. When you buy machinery, or use company capital to buy a whole fleet, your piggy bank takes an immediate hit. This might not be much of an issue for a multi million pound enterprise like The Royal Mail, but for smaller businesses this can really help free up some cash.
- Fixed monthly costs. (And again, no, this doesn’t include depreciation. We did promise!)
- You can react quicker to change without it being too costly. Whether you want to hire a mini digger or a large 20m telehandler, you can probably do so on the same day. If your project gets cancelled, as we are depressingly accustomed to at the moment, you can hand it back without stress.
The benefits of leasing do seem to outweigh the benefits of owning here but that’s not to disregard buying as a viable option. It is the flexibility & cash flow benefits that are perhaps most attractive due to the uncertainties of covid regulations. At the end of 2020 Philip Inman shared a statistic in The Guardian that 43% of companies were running on less than six months’ cash reserves, and over two thirds of businesses were at risk of insolvency. You may have heard people refer to renting as ‘dead money’ but in light of these statistics is it any wonder why businesses are thinking outside the box to relinquish some cash. The pandemic has forced business owners to reconsider traditional ways of fleet operation, and perhaps enlightened them to potential money saving benefits of hiring equipment. However, it comes down to a choice: Do you pay depreciation on owned machinery? Or rent cost per month of borrowed machinery? Whether you decide to own your fleet or rent it, you will have to pay one of the two regardless, it’s just about making the right decision for your business.
Stuart, our director and founder here at Rockthorn, explains how the construction industry would be lost without the ability to hire machinery. “There’s been real chaos in the industry over the past year! Sites left unmanned for months unexpectedly, and projects being put on hold following Boris’ Covid rules. Plans have been turbulent to say the least. Hiring your plant machinery can take the pressure off by providing flexibility and cost efficient solutions to businesses of all sizes. But another solution for a lot of businesses nowadays is asset finance.”
As Stuart quite rightly points out, asset finance is another cash efficient option for businesses that either can’t afford to pay a lump sum up front, or for businesses that would just rather pay in installments. It is, if you like, a hybrid between hiring and owning. Similar to hiring, asset finance means you can pay a fixed rate over an agreed period of time. The only difference being that at the end of most asset finance terms, you actually purchase the product. Here are a few other benefits of asset finance:
- Releases working capital – as previously stated, asset finance would mean your cash flow does not take a colossal hit on the front end. Even if your company capital is large, it’s sensible to keep some cash in the pot due to the current turbulence of the corporate sector.
- There are lots of types of asset finance. Some providers offer bespoke and more flexible finance agreements tailored to your business. This could be handy for businesses that are just starting out who may wish to pay lower installments at first until they generate some revenue.
- All the money you pay per month is not dead money. It is all coming back to you, when at the end of your agreement you own that asset. (Best of both worlds, right?)
- Some providers are also able to offer customers low deposit transactions and the option to finance the VAT until it is back in from the VAT Office. (Stokeparkfinance)
- Asset finance is a cheaper alternative to using a bank loan or an overdraft. They often have much lower interest rates!
So if owning your machinery is important to you, but you’re looking for a more cash-flow efficient solution, asset finance could be a neat way to compromise.
At Rockthorn, we are proactive, reliable, flexible and here to do the heavy lifting for you. We take the hard work out of finding you the best service, product and price in the sector, supplying the construction and related industries with a full range of services including plant hire, power generation, welfare facilities, aggregates, fuel supply and much much more.