cost of downtime. When a machine breaks down, the most significant cost is often not the repair — it’s the productivity lost doing the job by hand! The cost of lost revenue is far greater than most owners realize. Remember again: the potential revenue of each manhour is $100 per man, per hour. If your crew has to spend a half-day wheelbarrowing materials, that could have taken 30 minutes with a machine, you’ve lost hundreds, and maybe even thousands, in opportunity to generate revenue. In my experience, companies that run newer equipment generate more revenue with fewer people and less overhead. More often than not, this leads to a healthier bottom line, even if their equipment expenses are higher than average.
Helpful benchmark: If your repair and maintenance expenses are more than 1.5 times your fuel expenses, there’s a very good chance your equipment is costing you more in repairs and downtime than you would spend on interest or ownership costs of new equipment. LEASING VS. OWNING EQUIPMENT
been months, even years, ahead, had you leased. Leasing gives you the option to have the equipment with a minimal (or no) down payment. In exchange, you pay an interest or financing fee. However, with today’s interest rates, it can make a lot of sense to pay the lease interest, and keep your capital working for you in other ways to fuel company growth. Your capital can be used for important things like advertising, shop improvements, better terms or pricing for materials, etc., instead of saving you a couple of small percentage points on interest. There are many factors to consider when managing your equipment expenses, but I urge you to keep one thing in mind: Sometimes, the costs you can’t see are more important than the ones you can. Equipment helps your crews’ productivity. The more work they can complete in a day, the more revenue your company will earn, without adding payroll or overhead costs. When making equipment decisions, I strongly urge you to consider both sides of the equation. What it will cost you to invest in equipment... And what’s its costing your revenue not to invest. You LT will likely be surprised at what you come up with.
Many factors can affect whether leasing or buying equipment is the correct decision for your company. In general, I find most contractors like to “own” their equipment — with no payments — because it feels less risky. While there is no problem with the ownership mentality, it could stunt your growth potential or productivity. Many companies wait until tax season, or when they have saved up enough money, to buy equipment needed to improve productivity. But you could have
Mark Bradley is the CEO of TBG Environmental and LMN, based in southern Ontario.
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