New businesses are hard as they also come with many decisions about the approach. One big question you will get is whether to hire or buy equipment if your business requires some sort of equipment. I understand your mind immediately conjures pictures of earthmoving equipment and other heavy machinery but consider items such as video and still cameras, catering equipment and even computers. There are places you can hire all these things for your business. What we are going to look at are the key characteristics of the two acquisition methods and what they mean for your business.
Let’s start with buying as it is somewhat of a default position for machinery and equipment. It is also aspirational to own certain types of equipment depending on your business. Buying has great advantages and the biggest one is complete and total control. Your equipment used as and when you want and how you want. This appeals to many of us on a base level. Another great advantage of buying, though it depends on the type of equipment is the additional income you can earn from hiring it out. A sometimes understated advantage, which oddly can turn disadvantage, is you have total responsibility for the condition and therefore the performance capacity of the equipment.
It is not all upsides and the biggest downside with buying equipment outright is the financial outlay. Any equipment worth having will set you back quite a bit. Great if you have the money but there is an opportunity cost to it which we will discuss later. Secondly and perhaps an even bigger downside is risk. With ownership comes the risk of loss due to damage or other external circumstances. While there is also a risk of loss with hired equipment, the equipment you own is at risk 24 hours a day, even when not in use. Matters of repair and maintenance also sit on your shoulders. This problem gets bigger as equipment ages so if you’re buying pre-owned it will affect you more than buying new. But if you hold on to it long enough it becomes an issue to you. Security, insurance, repairs and maintenance are all additional costs you must consider. So that fallacy we are sold of just spending the money once does not work in real life.
I think from a cultural perspective we do not see any respect in hiring and this contributes to some negative feelings about it but it has great advantages. Let’s start with the pocket where the financial outlay is much smaller initially. I should take this opportunity to introduce leasing into the conversation. A lease is a special hire agreement that is long term. Hiring is short term and on a when needed basis. Leasing is a long term arrangement but the same. Lease payments are periodical small payments while hire payments are small ad hoc payments. Either way, the payments are small. Leasing does give full control while hiring gives control while the equipment is in your possession. Issues such as security, insurance and maintenance only come up as small additions to hire fee. Finally, hiring comes with the advantage of being able to upgrade or try something out without making a financial commitment.
There are still disadvantages to hiring. Firstly the lack of control means the equipment may not be available when you need it and there is little you can do about that. Secondly, while the outflows associated with hiring are much smaller than buying outright they can add up to a lot more. Knowing the Zimbabwean economy we must acknowledge that hiring can also come with regular price shocks (even in US dollars) like everything else. This can threaten your profitability or even viability at the drop of a pin.
What’s best for you?
Well, there is no easy answer. A lot depends on your financial muscle and how critical the piece of equipment is to the business. For a business in its early phase hiring makes sense. Owning equipment is great but a business is a customer at the end of the day. You can have a business without offices, equipment, a website, business cards and uniforms but no customer no business. This is where the opportunity cost I mentioned earlier comes in. Even if you had the money to buy the equipment outright you might be better hiring (or leasing) and spending the remaining money on customer acquisition. Else you and you shiny equipment will sit and look at each other. Hiring is also favourable to low production runs which you are likely to start with. The likelihood of your photography starting by being booked day to day is very small. So hiring may serve you better.
There are many things to consider in this conversation and I would say the most important thing is to consider all the possibilities. Too many times I’ve seen people make bad decisions, not because of a lack of ability but rather because they did not know all the options available to them. I would also drill down into the numbers with professional help. Profitability leads to viability. Above all make an informed decision.