To rent or buy? During the heady boom days the decision wasn’t as important, or considered as heavily, thanks to free flowing credit and cash.
But with those days well gone there is increasing focus on cost control and to make the right budgetary decisions.
Investment Growth Is Down
According to NAB senior economist Spiros Papadopoulos, the latest capex figures from the Australian Bureau of Statistics indicate investment growth will be negative for this financial year, and likely for the 2014-15 financial year.
Active Air Rentals director Brad Sweeny explains why companies are increasingly choosing to rent instead of buy, especially when it comes to temporary HVAC and power generation equipment.
New Motivations for Renting Equipment
‘During an economic up-turn companies rent equipment, such as chillers, power generators or portable air conditioners, to support rapid increases in demand. This is often because the lead time on purchasing equipment can be years, so the quick and easy option of renting is very attractive.’
Changing Priorities
‘However, companies are now considering rental for different reasons. Companies, especially those that are publicly listed, are changing their priorities. Amid increasing shareholder expectations of improved dividend payments, companies are now being more selective on purchasing assets that generate an acceptable return.’
‘Because of this we’re increasingly seeing capital purchases such as chillers in a building’s HVAC plant, is not a priority. However, this doesn’t address the fact that the equipment is still ageing and the facilities managers are constantly under pressure to keep the air conditioning working.’
‘So instead of replacing and using capex, companies are now renting to supplement their ageing equipment and therefore using opex budgets.’
Quick Fix
This decision has a number of knock on effects as Brad explains, ‘Firstly, it deals with the problem quickly and efficiently; financiers tend to swiftly approve the cost as it’s an opex item and rental companies can generally deliver in tight time frames providing HVAC or power capacity when needed.’
Happy Accountants
‘Secondly, rentals make the accountants happy as the agreements are for a guaranteed fixed, regular price over an agreed term, with an option to extend the rental period if required. This improves cash flow and accurate budgeting.’
No Added HR Overhead
‘Finally, with rental equipment, companies don’t need dedicated experts on staff. If something goes wrong it’s the rental company’s responsibility to fix it. And for long term rentals, maintenance is included in the price.’
Companies are also savvier to hidden costs. Brad explains, ‘Insurance, spare parts, and accessories are all required to ensure the equipment can operate effectively. With a rental they are all specified and included. Again, this helps with cash flow and budgeting.’
‘Renting also provides companies flexibility and peace of mind. With the current uncertain economic outlook many smaller companies are choosing to keep higher than usual cash reserves. Renting equipment allows companies to be more flexible by quickly increasing or decreasing their capacity depending on demand while knowing that their cash is not tied up in expensive equipment.’
‘While Australia goes through this uncertain period it makes sense that there will be major changes to the way that companies think about cashflow and asset management.’
The rent or buy question will always be asked but we think that during this time of uncertainty many companies will find renting to be an easier and safer option.’
About Active Air Rentals
Active Air Rentals is Australia’s all round cooling, heating and power rental company. Specialising in hire and rental of temporary air conditioning, power generation, climate control and refrigeration equipment.
Founded in 1972 by Managing Director, Jim Sweeny, Active Air Rentals has grown from humble beginnings as air conditioner installers and sheet metal manufacturers, to an all round national cooling, heating and power rental company.
Today we are a multi-faceted business with four branches, two distribution centers and employing over forty permanent staff across Australia.
Active Air Rentals is renowned for providing outstanding service, excellent customer relationships and addressing difficult, unusual or specialised projects.
Active Air Rentals has over 40 years experience installing temporary air conditioning into every conceivable location. From crane towers to coal mines, from war ships to entire inner city villages, from emergency civil defence camps to enormous events such as the Australian Open and thousands of offices and server rooms along the way.
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