April 21 2008 12:00 AM

Financial options for Growing Your Business

Most landscaping businesses today are experiencing rapid growth. This proves that you're marketing effectively against formidable competition and servicing present accounts in such a manner to retain their loyalty. But growth has its problems. The faster and bigger you grow, the more likely it is that you may run out of capital before you run out of marketing steam. At that point, you will be focused more on raising capital than on running your business. If you've ever had to stand in a bank lobby line for 15 minutes just to make your commercial deposit, followed by another 15 minutes to have the deposit reconciled by the bank teller, you certainly know how much time it must take to convince a commercial banker to loan you $25-$50,000 to grow your business to the next level. Generally speaking, this time is well spent, considering banks can be your lowest cost of capital. You may want to preserve that time for when you may want to purchase certain assets that will appreciate in value, such as a commercial building to house your business versus renting your facility to help pay your landlord's mortgage payments.

Many companies today, both well established and start-up, have turned to alternative sources of financing to start their business and grow them to the next level. There are several different options in growing your company with alternative financing. One of them is equipment leasing, one of the fastest growing ways to acquire equipment. Lease financing programs require little or no down payment to acquire the equipment necessary to grow a business.

There is also the rent-to-own program. A number of rental houses will let you apply a portion of your rental payments towards the purchase of equipment. This is an excellent way of getting the down payment necessary to qualify for some bank programs. There is, of course, the old-fashioned way of paying for it out of your current cash flow. While this method has been tried and true for a number of years, it is not always the best. It could leave your company cash poor, thus limiting your ability either to bid on certain jobs requiring a capital outlay or prohibiting you from stocking up on certain supplies and or products that you sell for a profit. Either situation could have a long-term negative effect on the growth of your company.

Jack Snow of Sheffield Financial Corporation, of Clemens, North Carolina, says that his volume of equipment financing has been up 30% for the last nine years in a row. Snow attributes some of this growth to the higher cost of quality commercial equipment. In addition, he says that the landscape contractor of today is a far better businessperson, focusing attention on productivity and quality control.

Snow also cites the fact that many banks are not interested in financing relatively small ticket purchase amounts ($5,000 to $15,000). Also, equipment financing by companies such as Sheffield Financial Corporation often requires little or no capital down, making it very easy for the landscaper/contractor to acquire the equipment necessary to be competitive today.

Bob Amis of Advance Acceptance Corporation, Plymouth, Minnesota, echoes Snow's thoughts as well. He indicates that their volume has been up significantly every year for the past five years. He agrees that the higher cost of equipment, coupled with the fact that labor costs have escalated considerably over the last five years, justifies spending more to acquire equipment to increase productivity, instead of hiring additional employees. Amis believes that the successful landscape contractor of today will be working hard to solidify relationships with sources of capital in order to maintain and insure a steady growth of their business.

Pam Seeker and Steve Rohr, both with Preferred Capital, Inc. in Brecksville, Ohio, have also seen double-digit growth in the last year in the financing of equipment associated with the green industry. They attribute their company's growth in the green industry to the availability of programs to finance new contractors and landscapers, as well as the ability to finance contractors and landscapers with less than perfect credit.

Rohr indicates there are three major reasons for choosing one equipment leasing or finance company over another. They are service, service and service. Each member of the "green team" at Preferred Capital is assigned a specific manufacturer and dealer group to work with. Rohr reports that this personalized service makes a difference in a very competitive environment.

To get the manufacturer's point of view, we contacted Ray Badger from Turbo Technologies, a manufacturer of hydroseeding systems in Beaver Falls, PA. Badger indicates that equipment leasing and financing play a significant role in building his company's overall sales. Although the general trend in equipment costs has been up, putting the pressure on the cash flow of operators, Turbo Technologies has not increased prices on their hydro-seeding equipment over the years. Nevertheless, more of their clients are now requesting information on financing. Badger states that in the past his salespeople would advise a prospective client on the availability of financing at the end of the selling process. Today, the financing question comes up very early, and surprisingly, it is the contractor or landscaper expressing interest on the different finance programs that are available. He also states that it really makes good business sense to let the equipment earn the money to pay for itself rather than simply writing a check.

If your landscaping/contracting company is growing, and you are looking to increase both profits and the success of your company, equipment financing can certainly make a difference in helping you achieve those goals. Here are five hard and fast rules to consider when purchasing/financing equipment:

  • Use your lowest cost of capital to acquire equipment or assets that will increase in value versus depreciating.
  • Purchase/Finance only the equipment that you need, not the equipment that you want.
  • Match your repayment term to the life expectancy of the equipment.
  • When purchasing equipment through a finance or lease contract, match your payments to your known cash flow, not your expected cash flow.
  • Never limit yourself to one source of capital. Develop several lines of credit in order to insure that the competitive edge is on your side.

In this corporate climate, your knowledge cannot stay limited only to landscaping skills. Your business sense must be tuned as well. These alternative sources of financing can be a way of moving your company to the next level.

Editor's Note: Tony Polito is Executive V.P. with Allen Acceptance.