N3 Business Advisors
Construction Equipment Business – Buy an Existing Equipment Business or Start One from Scratch?
Updated: Feb 26
Owning a business can be one of the smartest career moves, especially in the current economic climate. When it comes to the construction industry in particular, there can be several advantages to owning a construction equipment business.
Renting out construction equipment can be highly profitable, and there is never any shortage of construction companies looking to hire equipment for their projects.
However, before you can become the owner of a Construction Equipment Business, you have to consider whether you would want to buy an already existing equipment business or start one from scratch. Each option comes with its own set of advantages and disadvantages that can play a big role in helping you make a decision.
Read ahead for a detailed understanding of the pros and cons of buying a construction equipment business versus starting a construction equipment business to help you decide which option might be the best for you.
Buying a Construction Equipment Business
The construction industry is highly competitive; sometimes, buying an already existing business can be more beneficial than starting one from scratch. If you're interested in buying a construction equipment business, here are some of the potential pros and cons you may come across:
The Pros of Buying a Construction Equipment Business
Already Established Business in a Highly Competitive Market
The construction industry is a highly competitive market with low barriers to entry. This means that hundreds of new businesses enter the market every year in most areas and that competition amongst businesses is very high. If you were to buy an already existing construction equipment business, you would have an already established business rather than competing with other new businesses to establish themselves.
Fewer Start-up Costs Such as Buying New Equipment
The biggest cost associated with a construction equipment business is buying the actual equipment that you will be renting out. This equipment can be very expensive, needs regular maintenance and upkeep, and needs to be ensured against damage. If you were to buy an already existing construction equipment business, the business would already have an array of equipment, leading to fewer start-up costs.
An Already Established Customer Base
The highly competitive nature of the industry makes it difficult to find customers and construction businesses to rent your construction equipment. An already existing business would have an established customer base and save you the trouble of finding new customers and building up your reputation from scratch. Many construction businesses are only as good as the equipment they use, because of which they may be selective of the construction equipment businesses they work with. As such, it can be difficult to find customers willing to work with you if you are newly starting out.
More Time to Focus on Growing the Business
If you buy an already existing construction equipment business, you have the added advantage of being able to channel all of your time and energy into other avenues, such as growing the business and managing it better or even marketing the business and expanding its scope.
Experienced Employees Already Hired
And finally, another significant advantage of buying an already existing construction equipment business is that the business comes with already hired employees. These employees are likely already skilled and have knowledge of the business, and are most likely loyal to the business, too.
The Cons of Buying a Construction Equipment Business
The Process of Buying a Business Can Be Lengthy and Expensive
Buying an already existing business is a long and expensive process. Searching suitable businesses can take months, followed by hiring a business advisory team, legal teams, solicitors, accounts, etc. There are also a number of fees that need to be paid other than the purchase price of the business.
There Is the Risk of Buying a Business That Is Not Doing Well in the Market
While a construction equipment business might look very good on paper, you may find that once you’ve bought the business, it does not end up doing as well in the market as you had expected. Despite thorough due diligence, there are various risks associated with buying an already existing business.
The Equipment Owned by the Business Might Be Damaged or Obsolete
The construction equipment that is owned and rented out is the biggest factor contributing to the success of a construction equipment business. If you buy a business that has damaged or obsolete equipment, then you would have to deal with repair costs and replacements. This would also affect the number of customers you get since most construction companies would not want to hire faulty or obsolete equipment.
Already Hired Employees Might Be Unhappy with New Management
A business changing hands is a difficult and uncertain time for employees. This can mean low employee morale or workers that are not happy with new management. The attitude of the employees can play a big role in how you would settle into your new role as a business owner. You may also need to hire new employees to replace old ones that are not able to settle under new management, which can be a cause for discontent within the business.
There Might Be Outstanding Contracts That Need to be Completed
The previous owners of the construction equipment business you buy may have had some outstanding contracts that would need to be completed or renegotiated. This can be a hassle and can cause a dent in plans to put new contracts into place. Old contracts may also end up being a big drain on resources and tie up a lot of the equipment that the business already owns.
Start a Construction Equipment Business
To avoid many of the problems that arise with buying an already existing company, you may want to consider starting a construction equipment business from scratch. Being the owner and founder of a business can be quite rewarding. However, starting a business comes with its own set of potential pros and cons to consider:
The Pros of Starting a Construction Equipment Business
Flexible Work Schedule and Business Growth
Starting your own company means you are your own boss. As such, you can determine your work schedule and the rate at which you want to grow your business. It can be easy to start small, and once you’ve established yourself in the construction industry, you can think about scaling the business and expanding.
A Relatively Simple Business Model to Work With
The construction equipment business has a significant advantage in that it follows a relatively simple business model. Building and starting a business is easier, with fewer hoops to jump through. Once you have the basic model to work off, you can scale up your business. Since the construction industry is so competitive and growing every day, it is easy to grow alongside it as the demand for construction equipment goes up.
Higher Gross Margins
The most significant cost you must deal with when starting a construction equipment business is the one-time cost of buying equipment. Once this is out of the way, maintenance costs are manageable and damaged equipment is usually taken care of through your equipment insurance. This means that there are very high gross margins to benefit from. Up to 40%, gross margins can help you grow your business and cover additional costs.
No Legacy Issues to Deal With
As discussed previously, a number of problems arise when buying a construction equipment business, such as dealing with faulty or obsolete equipment, the high costs associated with acquiring a business, and previous contracts that need to be completed or renegotiated. If you were to start your own business, there would be no legacy issues to deal with and work through.
New Equipment to Rent Out
Since the construction industry is rapidly growing and expanding, there are advancements in construction equipment quite often. If you were to start a new construction equipment business, you would buy new equipment to rent out to other construction companies. This new equipment can be a big selling point and draw in a lot of customers for your business as opposed to already existing construction equipment businesses that are dealing with older equipment.
The Cons of Starting a Construction Equipment Business
A Highly Competitive Market to Deal With
The construction industry is highly competitive. Low barriers to entry mean that there are a large number of new businesses entering the market every year. This means high competition and competing with other businesses to find clients and establish your own business. As such, you must take the time to analyze the market and find out where the demand for construction equipment lies in the market.
Having to Build a Customer Base from Scratch
Due to the high competition, a number of businesses compete for the same pool of clients. If you start your own construction equipment business, it may take some time to build up your reputation and gain a reliable and consistent customer base. When starting out, you may have to reduce your prices to break into the market, leading to lower revenue and profits.
High Upfront Costs of Buying New Equipment
And lastly, another big disadvantage of starting your own construction equipment business is the high upfront costs you have to deal with when investing in and buying construction equipment to rent out. You also need to ensure your equipment and your business and deal with regular maintenance and upkeep costs.
N3 Business Advisors – Construction Industry Mergers & Acquisition Advisors
If you are thinking of either starting up a construction equipment business or buying an already existing one, it would be helpful to get the advice of professional business advisors. N3 Business Advisors can help you in your endeavor. We are a merger and acquisitions advisory firm located in Ontario, Canada. We work primarily with businesses in the construction industry, such as HVAC companies, general contractors, landscaping companies, civil engineering firms, and more.
Our team has experienced members that can help you in every aspect of your business transactions. Whether you need of lawyers, valuation specialists, insurance advisors, accountants, financial planners, financial analysts, realtors, or HR advisors, N3 Business Advisors is your one-stop solution.
You can get in touch with N3 Business Advisors now to schedule a confidential consultation. Visit our website for more information, or call us at 647 967 4222. Our office is located at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9. You’re just one step away from getting together an experienced and trustworthy team to help you acquire or start up a construction equipment business.
The Bottom Line
When it comes to construction equipment businesses, the nature of the market is such that there is very high competition with low barriers to entry and a limited number of customers that all of the businesses have to compete for. There are also high costs of equipment to consider and the ease of working with an already established business.
We have gone over some of the more common pros and cons that come with buying a construction equipment business and starting a construction equipment business from scratch. After considering both, you might be able to conclude which option might be a better fit for you.