How Contractors Can Profit from Idle Equipment

by: Smith and Howard

June 23, 2017

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If you have construction equipment that’s sitting idle in your yard, it’s costing you money to store, maintain and insure. Although a certain amount of downtime is inevitable when project workflow varies, you’re wise to look for ways you can put idle assets to profitable use.

If you’re confident you won’t need a piece of equipment again, you can of course sell it. But if you expect the stretch of idleness to be temporary, you may be able to rent out the asset to another contractor in the interim. Either way, some new tools and services are making it easier to manage the process.

Paths to equipment sales

The market for used construction equipment has been pretty robust — especially since the Environmental Protection Agency’s Tier 4 emission standards have driven up the cost of new machinery. A recent survey of Independent Equipment Dealers Association members shows increased demand for pre-Tier 4 construction equipment, including excavators, backhoe loaders, wheel loaders, dump trucks, dozers and compact equipment.

Once you decide there’s equipment you’d like to sell, there are several ways you can go about it. One is to connect with a used-equipment dealer and talk about your options. A dealer will estimate your unit’s value, but you may want to hire an independent appraiser or do some online research to get an idea of what it’s worth going in.

Next determine whether you want quick cash or are willing to wait for a higher price. A dealer consignment sale lets you control the price you’re willing to accept, but not the timing of the sale. If you want a quick turnaround, the auction marketplace may be a better route to take.

Also consider the possibility of selling equipment online. There are a number of sites and services that can get your asset out in front of an international pool of interested buyers. By using an online resource, you can sell equipment directly from your yard.

Rental networks

Not too long ago, renting idle equipment to another contractor would have been a daunting prospect. You might have had an informal arrangement with a friendly competitor to rent each other’s equipment when a need arose. But, for most contractors, setting up a side rental business would have been more trouble than it was worth.

With the advent of the “sharing economy,” in which firms like Airbnb and Uber have become hugely successful, it’s not surprising that new options are making it easier and less risky to “share” construction equipment. Indeed, some online networks now can act as an independent third party connecting equipment owners and potential renters. Their role is to verify to renters that equipment is well maintained and ready for work, and to owners that renters have the experience and certifications to operate the equipment properly. (Search for “construction equipment share,” and you’ll likely find some examples.)

Fee structures, insurance coverage, delivery arrangements and rental terms can vary from network to network, so investigate carefully to find an organization that you’re comfortable with. Also, talk with your own insurance company about the risks of renting and the extent of renters’ and networks’ coverage. And be realistic in determining how long you’re able to part with your machine, so you don’t agree to a rental contract that leaves you lacking the asset when you need it.

In addition, look for a network that will facilitate communication between renters and owners. There will likely be a rating system used to evaluate both parties. So pay attention to the ratings earned by prospective renters, and do your best to earn high ratings in return. Sending out your equipment clean, with a full gas tank (and maybe an owner’s manual), is a good start to getting high marks.

Great care

Whether you choose to sell idle equipment or rent it out, you can improve your bottom line by turning that heap of immobile metal into a revenue source. Just be sure to approach either type of arrangement with great care. Your CPA can help you crunch the numbers and determine which way is best for you.

3 ways to maximize equipment value

Whether you want to attract renters or buyers for your idle equipment, you’ll want to make sure the machines are worth paying for. Other contractors will be seeking equipment they won’t have to worry about or invest more money in to repair. Here are three ways to maximize equipment value:

  1. Establish a formal preventive maintenance program. Proper preventive maintenance will catch and correct minor problems before they become major ones, so it works to your advantage while you’re using the equipment yourself. And the documentation generated by a formal program will assure a prospective buyer or renter that the equipment has been well cared for.
  2. Don’t let things slide on the job site. Top off fluids, and make sure any attachments and accessories are in good working order while the equipment is in use. Replace any broken or burned out lights right away. Letting tasks like this go for too long can hurt the long-term value of the asset.
  3. Make needed repairs. Unless you’re sure a prospective buyer only wants the machine for spare parts, it’s best to fully repair it before putting it on the market. One used-equipment dealer says that, for every dollar spent on repairs before a sale, you’ll gain two dollars in return.

For more information on Smith and Howard’s construction advisory services, contact Sabre Linahan at 404-874-6244 or simply fill out the form below.

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