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Because commercial construction firms in general are experiencing a much more consistent and strong flow of projects than eight or nine years ago, many contractors are approaching equipment fleet acquisitions with an elevated level of confidence that the assets will be continuously utilized at a high rate. 

That being said, a smart, precise and forward-thinking fleet financing strategy is critical to maximizing profits and staying competitive, even when business is booming. 

Using the following steps as a guide, contractors can maintain the up-to-date equipment fleets they need to take on jobs while remaining nimble enough to adapt to fluctuations in project flow.

Diversify Fleets for Flexibility

When it comes to effectively structuring an equipment fleet, diversification is key. A fleet should ideally consist of a balance of owned outright and leased machinery. Firms also should reserve some cash flow and room for rentals, on the chance that they land significant short-term contracts. 

Current industry trends indicate that even in this strong economy and construction market, companies should own no more than half of their fleet and lease the remaining amount on operating leases, which involve lower monthly payments than leasing-to-own. 

By leasing assets on terms of approximately three to seven years, depending on the type of equipment, companies can keep their fleet equipment fully maintained at an affordable rate—with no obligation to buy if job velocity slows by the end of the term.

Additionally, the leased units in a fleet should be on varied term cycles to maximize efficiency. Doing so ensures that a significant portion of the fleet will never be out of commission at once. Minimal overlap is ideal when it comes to equipment maintenance and replacement. 

While short-term equipment rentals should ideally be kept at a minimum, they should not be completely ruled out. The rates for rentals tend to be much higher than leasing, but renting equipment can be the most cost-effective solution for specific projects. For example, if a project requires a specific equipment type that most likely won’t be used for other jobs, renting is the best option. 

Keep Equipment Up to Date to Maximize Fleet Efficiency

Another benefit of leasing a significant portion of a construction equipment fleet on an operating lease is that it allows for seamless maintenance and refresh, as technological advances and increased usage due to a high number of jobs are affecting equipment efficiency at much faster rates.

A shift in technology has occurred in tandem with the construction industry’s growth during the past several years. New technologies are emerging in both equipment and software, forcing companies to update their fleets and management systems or get left behind. 

Further, not only does leasing allow contractors to upgrade to newer equipment at the end of each leasing period, but it also saves time. The last thing contractors need is broken down old machinery, which can translate directly to lost jobs. 

Protect Against the Industry’s Cyclical Nature

The peak of the commercial construction cycle is not too early to prepare for the impending drop. One way that contractors can do this is by making strategic decisions when it comes to financing and leasing equipment.

 Leasing equipment eliminates much of the risk that comes with scaling up fleets as growth continues. If the market were to experience a major downturn, leasing allows contractors to simply return their equipment when the term is up. If the assets were purchased, a company could be stuck making payments on inoperative equipment for years to come. 

For example, a construction company that finances new excavators on operating leases will make lower payments over several years and defer the decision to acquire the assets outright. If at the end of a term, projects have slowed (or a much more efficient version of the equipment is on the market), the firm can easily hand back the equipment and it is not left with millions of dollars in difficult-to-sell assets that cannot be used. 

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