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6 tips for running a profitable construction equipment rental business

2nd August 2021 Print

Running a construction equipment rental business has some serious long-term profit potential. You’ll be required to invest a significant amount of cash upfront, but once your business is fully operational, it won’t take long to start turning a profit.

Large machines like backhoes, excavators, and tractors will last a long time, provided they’re built by a reputable company like John Deere, Caterpillar, or Kubota. The long life of equipment is what makes this type of business so profitable.

If you’re considering starting a business to rent out construction equipment, these tips can help you run your business, maintain your machines, and turn a profit.

1. Require dust caps to protect your hydraulic couplings

Dust caps are a requirement for your machines with quick connect couplings. Using dust caps will extend the life of your couplings and reduce required maintenance. Dust caps prevent contaminants like water, mud, and dust from damaging your couplings.

You might not realize how much dust and mud can accumulate in your couplers, but whenever you move large amounts of dirt, it’s almost guaranteed to happen. To protect your equipment, your rental contracts need to specify the requirements for using dust caps, including when and how.

Naturally, you’ll need to provide your customers with properly fitting dust caps along with their rented machinery.

2. Create an iron-clad rental lease through a lawyer

You’ll need a strong lease if you want the ability to pursue customers in court for damaged equipment. It’s not enough to download free lease templates online and hope they hold up in court. To get an iron-clad lease, you need to consult with a lawyer.

Your rental agreement needs to cover a variety of factors, some of which you might not even think to include. For example, representations and warranties, insurance, and liability are critical clauses. These clauses, however, aren’t easy to construct without a lawyer.

If your lease isn’t iron-clad and clear, you risk losing in court if you have to sue a customer for damages or loss.

3. Pay off your equipment as fast as possible

Unless you’re a millionaire, you’ll need to use a line of credit to purchase your rental inventory. The sooner you pay off your equipment loan, the sooner your income will be pure profit. This could take anywhere from 10 to 30 years, depending on how much equipment you purchase.

You’ll have to meet your monthly payments to avoid defaulting on your loan, and that can get expensive. However, it will be even more expensive if you drag out your payments for the length of your loan.

Whenever possible, pay off your equipment as quickly as possible. Make extra payments and pay more than your monthly minimum. See if you can reduce the length of your loan by a few years. You’ll probably incur some kind of early repayment fee if you do this, but it will be cheaper than paying interest for another 3-5 years.

4. Learn from others

Every business has its benefits and drawbacks. Renting large construction equipment might seem like an easy business to run, but underneath the surface, there are plenty of nuances to the industry. You can learn a lot from others with experience in the industry.

For example, you’ll be most successful by renting out high-quality machinery that won’t break down. You may want to consider buying newer equipment that comes with a flat-screen computer that will assist operators every step of the way. These are small details that experienced business owners emphasize.

5. Align your inventory with local demand

Before committing to buying specific pieces of equipment, research the demand in your local area. What do people want most? What machines are rarely in demand? What machines are in high demand, but hard to find?

If you have competitors, find out what machines they rent out and what items they’re missing. Once you know what your local demand is, choose your inventory based on those findings and pay special attention to acquire hard to find machines.

6. Get at least one mini-excavator

In addition to standard excavators, make sure to get at least one mini-excavator. Many people need smaller machines because they can’t fit the larger equipment on the job site. Some people have narrow, winding driveways, and others just don’t have enough space to operate a full-sized machine.

Be ready for some hard work

Running an equipment rental business is hard, but the profitability makes it worth every ounce of effort.