Equipment: rent, buy used, buy new or finance

A machine you own costs money whether it runs or not. Fixed costs are the value it loses each year, insurance, registration, storage, the repairs that come with age, and interest if you borrow. Running costs are fuel, wear parts and grease, paid only when it works.

Cost per productive hour = yearly fixed costs ÷ productive hours + running cost per hour.

Productive hours are hours doing work on a job, not hours on the trailer or waiting out rain.

Example (made-up numbers). Ray is looking at a used skid steer for $36,000. He figures he'd sell it in six years for about $12,000, so it loses about $4,000 a year. Add $1,000 a year for insurance, registration and storage, and $2,000 for repairs and maintenance: $7,000 a year to own. He'd use it about 35 days a year at 6 productive hours a day, or 210 hours. $7,000 ÷ 210 = about $33 an hour, plus about $9 an hour for fuel and wear parts: about $42 per productive hour. That's his cost, not a price to charge.

Break-even days = yearly cost to own ÷ rental cost per working day.

Use the weekly or monthly rate you'd really pay, with delivery. Day rates cost the most per day, so comparing against them makes owning look better than it is.

Example (continued). Ray's rental yard quotes $1,250 a week with delivery, or $250 per working day over a five-day week. $7,000 ÷ $250 = 28 days. At 35 days a year, renting costs 7 weeks × $1,250 = $8,750, so owning saves about $1,750 a year on paper. At 20 days a year, renting costs $5,000 and owning still costs $7,000, so renting costs about $2,000 less on paper.

Then come the questions the math can't answer. Was 35 days a real count or a busy-year guess? Where does it sit all winter? When your own machine breaks down mid-job, who brings a replacement? And would the $36,000 come out of your winter reserve?

• Have a mechanic you trust look it over before you pay: hours, leaks, wear on pins and bushings, tires or tracks.
• Ask for service records, and make sure parts and service are close by.
• Get proof it's paid off, and check for liens before money changes hands. A lender's lien can follow the machine to you.
• Get the title or a signed bill of sale.

Run all five Borrowing Rules (B102.3). In a seasonal business, rule 3 is the one a busy year can hide: the payment has to fit your slowest months, not your best ones.

Example (made-up numbers). Financing Ray's $36,000 machine at an example 9% over three years means a payment of about $1,145 a month, with about $5,200 of interest added to the cost of owning. In January, with no work, the payment still comes out. Four winter payments are about $4,580 that has to be saved before the snow flies.

A tax deduction doesn't make the machine free. Section 179 and bonus depreciation can let you deduct the whole price in the year you buy. But a deduction saves only your tax rate times the amount. At a combined rate of 30% (example), deducting $36,000 saves about $10,800 in tax, and you're still out $25,200. A big write-off also shrinks the profit on the return a lender reads (B102.3).

• Small Business Development Centers: free help running rent-versus-buy numbers (find your SBDC).
• SCORE: free mentoring from owners who've made these calls (score.org).