Should you buy or should you hire? Whether you need a greens mower or require a fleet of smaller items for contract maintenance, if you decide to buy, expect to see a significant hole appearing in your capital budget.
You may think you have no option other than to accept the cost and risks of owning your own machinery, with the high initial outlay and ongoing depreciation. However, there are other options available — such as finance replacement hire — that enable you to enjoy all the benefits of ownership while passing all the associated risks and costs to a third party.
Both outright and financed replacement purchase are on the increase, with more local authorities either dipping deeply into their purchase budgets, or contracting out much of their procurement need. And this, at least in part, is why the past 18 months have been tough for horticulture’s major plant and tool hire companies.
At the end of November, Scottish Grass Machinery (SGM) was put into administration. The company is a leader in the provision of commercial grass-cutting equipment on contract, to both public and private sector customers UK wide. As Horticulture Week went to press, commercial manager Andy Kirby of SGM Finance — a division of the parent company based near Edinburgh — said: “We are operating as normal and our customers are not seeing a difference to our level of service.” He declined to comment on the future of the business.
SGM has assets in excess of £20m, and a turnover of £13.1m (for the 10 months to end September 2006) — producing earnings before interest, tax, depreciation and amortization of £3.5m.
This is the latest in a string of difficulties for the hire sector, which a year ago saw Cheshire-based Swan Plant retrench and start rebuilding the business with a new management team under managing director Ian Hogg.
But some hire firms have fared rather better. In November, A-Plant expanded the company’s grounds care hire fleet with more than £220,000-worth of new ride-on mowers. On the domestic front, householders are increasingly choosing to renovate rather than move house, and landscapers are benefiting from the current home-improvement boom. Because of
this, leading high-street chain HSS Hire is seeing a growing demand for the range of grounds care and maintenance equipment available throughout its 400-branch network.
Marketing director John Cope says: “For many contractors, the best option is simply to hire the specialist tools and equipment they need rather than have to buy, store and maintain it.
“Our landscape customers are still surprised by the extent of our range and if we don’t have something in stock ourselves, we can source it and supply it,” he adds. “We hire out everything that is needed to saw, prune, trim, shred, clear and clean.”
If you are a local authority officer responsible for equipment supply with a five- or even six-figure annual budget, or if you are a grounds care contractor needing a new hedgetrimmer, the same question applies: hire or buy?
For a quick-fix solution, the simple answer would be to hire. But will this be financially wise in the long term?
We have spoken to leading manufacturers and hire companies, as well as customers, in an effort to help make the decision easier.
Five reasons for hiring
No capital outlay
Often, small businesses simply don’t have a large amount of cash available. And perhaps the thought of taking out a huge business loan for a single item seems disproportionate. Kirby of SGM says: “Even local authorities with large budgets can agonise long and hard about whether it is right to buy items when they can be hired for a fraction of the price.”
Nevertheless, it is not unheard of for companies needing a piece of equipment in a hurry to rush off to a nearby main dealer and buy it without even comparing prices, let alone considering taking the same product out on a short- or long-term hire. They often regret the impulse purchase or, to be more specific, regret the sudden loss of useable capital.
Most of the larger hire firms, including HSS, Swan and A-Plant, offer much more than just a hiring service, and are happy to work with customers to find a financial solution that suits them best.
No maintenance and servicing costs
Specialist machinery is expensive and requires substantial investment, so there is a temptation for cash-constrained contractors that have bought equipment to retain it for as long as possible. They will need to service it and replace parts when necessary. Eventually, it becomes unusable or unsuitable for the job.
An A-Plant representative says: “Hiring puts the responsibility for upkeep of the equipment in the hands of the rental company. And in the unlikely event of a breakdown, the hire company’s engineers will repair the equipment on-site and/or provide a replacement machine to reduce on-site downtime. In simple terms, by using a hire company, grounds care customers transfer the responsibility for fleet maintenance and servicing to a third party.”
Latest models/technology available
All of the big rental firms regularly upgrade their core ranges, meaning that customers will always be using the most up-to-date machinery on the market.
The A-Plant representative says: “By continuously assessing the individual strengths and weaknesses of each manufacturer’s product range, we stock the most effective equipment for each type of application, from ride-on machines to strimmers.” In November, A-Plant expanded its grounds care hire fleet with more than £220,000 worth of new ride-on mowers. The new Ransomes Frontline 728, Highway 2130 and Parkway 2250 Plus mowers provide a choice of cutting widths and speeds, for applications from cutting roadside verges to large expanses of grass in parkland, sports grounds and country estates.
Most of the major hire companies offer a branch-finder service via their websites or over the phone.
No expensive down-time
Much of the work carried out in horticulture is seasonal. Chainsaw use and some container planting can be thought of as year-round activities, but grass and verge cutting, hedge trimming and bare-root planting are highly seasonal. “It means,” says Kirby, “that when the grass is not growing, the grass isn’t being cut.”
He added: “Choosing to hire instead of buy overcomes idle machine time. We’ve all seen large items standing untouched for long stretches of time. This is a particular issue in the grounds care sector.”
No long-term storage requirement
Anyone with long-term ownership of equipment must keep it safe, secure and probably dry, so covered and lockable storage is essential. But storage is not cheap.
On the other hand, short-term hire can vary between a day, a week or up to an entire season, so if you have long-term storage problems, hiring could be the answer.
Kirby says: “Equipment can be hired when it is needed for seasonal work, avoiding any storage issues, particularly for idle machines over the winter months.”
Five reasons for buying
A one-off expense
John Deere Finance senior manager Joedy Ibbotson (pictured below) says: “Buying a piece of large kit can be expensive, but you know that this then becomes yours. No one else can make a claim on it or ask for it back because the contract time is up.”
He adds: “Many private, often family firms, prefer to spend a single sum of money, up-front, and then they do not need to worry about further repayments or interest charges. This can make a lot of sense, depending on the structure of the company’s finances.”
Good finance packages available
If owning your own equipment is the only way for you, or you’re not prepared or unable to make a large capital outlay, many of the big-name manufacturers offer finance packages that allow you to buy or lease the latest machinery.
For the past six years, Etesia Finance has offered a low-cost finance plan to reduce monthly payments and spread the cost of equipment over several years. General manager Les Malin of Etesia UK, which distributes a range of heavy-duty mowers and brushcutters, says: “Typically, a hire firm may charge £250 per week for something like our Hydro 124 DN ride-on grass cutter, but over a five-year period we can arrange a rate from £60 per week — and the machine will be owned at the end.”
John Deere Credit is another. It has set up finance deals with everyone from small contractors to major golf courses and hotel groups. The business can be broken down, approximately, to 30 per cent contract hire, 10 per cent lease hire, and 60 per cent purchase through approved financing.
As a buyer, you may even be able to enter into a planned replacement policy. This means that you can upgrade or renew the equipment after a few seasons under the same policy terms. A bonus with this arrangement is that you will be able to forecast your equipment costs more effectively, as you will not be exposed to high maintenance costs, or sudden heavy repair bills for old machinery.
Items become a business asset
Plant, machinery and other items of equipment owned in order to conduct business come under the title of “fixed assets”. Malin says: “Purchasing equipment, be it large or small, becomes an asset of the company. Assets are a reflection of organisational strength, and are invariably evaluated by potential investors, as well as banks, creditors and other stakeholders.”
They are reported at their original value, but their current values may be much lower (in the case of depreciation) or higher (as in the rise in property value).
Equipment is always available
Malin says: “When you buy your own kit, and provided it is maintained well and stored safely, it will always be there for you to use. Even if there is a sudden and unexpected need for it, it will be ready and waiting. This is not something that you can always guarantee when your policy is to hire your equipment.”
This is supported by transport manager Len Harfield of Sunderland City Council: “There is tremendous value in being able to get to your machinery at the moment you need it. This is important in the public sector, where health and safety issues on authority-owned land, and certain environmental factors mean that we are always in the public gaze.”
Familiarity with products
Every item of powered equipment is different. Even two identical models can be can have different operating temperaments and, say all of our commentators, it can be very reassuring to be able to return to an item that you have used before, and know its foibles and, essentially, be able to trust it.
Harfield said: “I always say that you should get to know your machinery; you should be familiar with it, and know how to use it properly and safely.
“Hiring in different brands means that you need to start learning them all over again.”