07 22 2015

Construction Costs Increasing for Businesses

07 22 2015

Construction Costs Increasing

Construction equipment leasing companies should experience a boost in the coming months. Despite a drastic drop in the gasoline index and an overall decline in the energy index, construction costs increased at an annualized rate of 4.64 percent, according the Rider Levett Bucknell’s National Construction Cost Index. This increase comes as the Consumer Price Index for All Urban Consumers, or the general economic inflation, fell at an annualized rate of 4.03 percent.

During the recession, the construction industry shrunk by shedding excess inefficiencies, reducing major projects, cutting jobs and ultimately demanding less in terms of resources. In line with market dynamics, supplies shrunk in accordance with this dip in demand. Now that construction work has picked up steam and businesses continue to expand, the industry is making demands on the overall economy that the market is struggling to supply. This gap separating the supply and demand of resources and materials has forced bids higher and drove up costs, creating a ripple effect of higher prices all throughout the industry.

In addition to the construction industry growing into its post-recession size, job openings have reached their highest level since January 2001, according to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey. When combined with Vistage’s survey that found 75 percent of small-business owners reporting difficulty in locating talent or the lack of skills among applicants, the two trends lead to higher wages, which creates another factor driving up construction costs.

Cut costs with leasing equipment

With rising costs for construction projects, many companies will be seeking ways to overcome their budgetary constraints and maximize their available assets by turning to construction equipment leasing companies. While many companies rely exclusively on leasing equipment to complete projects, some might not immediately realize the benefits to the business decision. But the fact of the matter is that whether it involves starting up a new business, trying to grow an existing one or just looking for ways to implement cost-saving measures, leasing construction equipment remains a tried and proven method for helping businesses succeed.

Buying construction equipment will take a significant chunk from any company’s operating budget right from the get go. Then once it has been purchased, there is simply no guarantee the equipment is the perfect fit for your company until you have tried it out on the job. By leasing the equipment instead, companies have the option to pay smaller costs to test out the appropriate equipment and ensure that particular piece fits the company’s needs.

The rate of technological improvements and upgrades to models means any equipment a company purchases quickly becomes outdated. Instead of staying trapped in the never-ending cycle of trading in old models for newer versions, companies should consider leasing the equipment as a means to stay current on the latest iteration of any cutting edge technology. In some instances, leasing equipment companies include maintenance with the agreement, which offers another means to reduce costs.

Additional benefits

Some companies even have the option of negotiating in favor of establishing equity in the equipment by having the leasing agency use their lease payments as credit toward the equipment’s purchase price. While this option isn’t always available in all instances of construction equipment leasing, when it does arise, it makes a great incentive for companies looking to save money while simultaneously building equity in the equipment.

The Internal Revenue Service provides a great incentive to pursue leasing equipment instead of buying it: Section 179. This portion of the tax code treats leased equipment as an off-balance sheet operating expense, which makes the lease payments 100 percent tax deductible.

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