To Buy or Not To Buy...That is the Question
"Sure, Sam. Hey, not trying to tell you how to run your business, but as much as you've paid to rent that thing this year, you could have bought a new one by now! See you tomorrow, my friend!" Joe is still chuckling at his 'joke' as the receiver goes down.
Sam hangs up the phone, scratches his head, and pulls out the rental invoice folder. The familiar chi-ching of the calculator is heard for several long minutes, then a loud groan. Sound like someone you might know?
The day you hung your shingle up as a professional landscape contractor, your operational capital was minimal, if it even existed. You found the least expensive rental company, and they became your best friend. As capital built up in your company, you bought the essential tools and equipment that are used daily.
1) How often do you actually have to rent this equipment for use on a job?
2) Would the cost of maintenance exceed the savings in rental expenses?
3) Would you be able to make the payments during the slow season and would they allow you to make deferred payments?
4) Would you have to buy a truck and trailer to haul the equipment and is this extra expense justifiable?
5) Do you have storage space in your shop for the equipment?
The time of year is approaching when many landscape contractors begin looking at their ledgers for the past year to see where they stand with their profit margin. This is where the pencil has to be sharp, and major decisions need to be made. To buy or not to buy; this is an age-old question all contractors have to face at some stage of growth within their company. The answer lies in whether or not they want to continue to grow or remain at the same size.
Without exception, the skid steer loader is the unit most often first rented then eventually bought by landscape contractors. "We rented a skid loader until the year I spent about $8000 on rental," says Eric Kolb of Triangle Green Scene, Inc., in Raleigh, North Carolina. "Then I said, 'okay, I need to jump in and get this piece of equipment.'"
On construction jobs, Kolb uses the skid loader for innumerable tasks. ?There are so many attachments to choose from, we don?t have them all. The ones we do have, though, we use constantly.? During his busy season, he has had occasion to rent an additional skid loader to speed up the job.
Kolb has the attachments to move mulch, soil, to grade, and for snow removal. He also has a tree boom to unload big trees, a landscape rake, a trencher for irrigation, and a pallet fork for moving around pallets of fertilizer or sod. The pallet fork is primarily used as an installation tool, but also on maintenance jobs where he has bulk mulch, for tree removal, and even in the shop to move pallets or to load his trucks.
?It helps a lot to have a good relationship with your rental store dealer,? says Kolb. ?Even on some installations with our skid loader, I will still rent a mini-excavator. On a big job, I will have my skid loader taking trees off the truck and driving them to the hole, where I will have the mini-excavator digging the holes. It has tracks, not wheels, and is specifically made for digging holes. It can dig holes very fast, but it does not have a lot of ground speed.?
Dave Daniells of Heads Up Landscape Contractors, Inc., in Albuquerque, New Mexico says they own seven or eight skid loaders during any time period. "We roll them out on a three to four year cycle, typically that is one to two per year. We trade then in, purchase one, and lease one to buy. Usually after about six months, we exercise our option to purchase. We do that for balance sheet arrangements, basically for balancing our debt more than for tax purposes."
The attachments that Daniells uses are augers, U-blades for digging tree holes, trencher, pallet forklift, buckets, rotor tiller, and the sweeper. They also will rent additional skid loaders as needed during their busy season. "We own a backhoe, and on occasion we will rent an additional backhoe."
Daniells will also rent trucks on a short-term basis to evaluate whether or not they really need them when things slow down. "One program we have implemented within our fleet is our employee truck lease program."
"In this program," explains Daniells, "our employees buy their own vehicle and we pay them a certain amount per month lease payment for use of their vehicle. There are certain restrictions: The vehicle has to be white; they have to put our signs on it; they pay the insurance and maintenance; and we pay the gas. This has worked out well, because if someone leaves, they take that expense with them. The reality is, many of our decisions are debt driven."
"For irrigation, we still rent our equipment," Kolb says. "Depending on the size of the job, if I can rent a trencher to ride on, I want that. It's easier to go through our thick clay soil and it's a better machine. On other jobs, if the quarters are real tight, with maybe a one-quarter acre lot, then we have to get the smaller one. Maintenance wise, storage wise, and because my irrigation is not consistent, it's cheaper to rent rather than to buy. I may do three irrigation jobs a month, then go three months and not install any irrigation. It's one of those times where you have to look at the situation. You always get to a threshold when you use it enough, and you say okay I am better off buying than renting; I?m not there yet with the trencher."
The locale of the country will determine the type of equipment used as well. Michael Hofman of Janet Moyer Landscaping in San Francisco, California, has the unique problem of the houses being constructed so that there is no direct access from the street; the houses are attached. Usually you have to go through a room, a garage, a tradesman entrance; you cannot just get a bulldozer in the back yard.
"If we?'re doing a major installation, many times we have to build structures to get to the backyard," said Hoffman. "Or we have to carry the material through the house. When we rent equipment, it is along the lines of a crane to lift plant material over fences into the backyards, so purchasing has never become an option for us," he added.
Gary Krause, owner of Gary Krause Landscape Contracting in Medford, Oregon, rents all his equipment. When he bids a job, he works with the rental company salesman, who gives him a package deal rental rate for all the equipment he will need and this amount is bid into the job. As he is ready to use a piece of equipment on the job, he calls the rental company on his cell phone and it is delivered to the site. When he's finished with the equipment, he calls them again and it's picked back up.
Renting is not considered an option for the equipment used in maintenance work. However, the equipment is usually financed. Riding mowers, trim mowers, string trimmers, edgers, snow blowers, lawn vacuums, and leaf blowers are all standard equipment for the contractor. Each of these has a three to five-year turnaround, depending on the amount of usage. When this equipment is traded in, an upgrade is generally the trend.
"We own all our mowers," says Kolb. "The bigger mowers we finance. We use the zero turn, 51 and 60 inch, belt driven models. I have one crew that does maintenance six days a week, and another that does it about two days a week."
Aerators are the one piece of maintenance equipment that just about every contractor we spoke with rents, because they are seasonal. "We don't have to do the maintenance on them and we don't have to store them the other three seasons," says Kolb.
Before you go to the dealership, you, the owner of a professional landscape company, will have already arrived at the answer to the question, to buy or not to buy. It is an individual answer for each individual piece of equipment in question, for each individual contractor, with the key being in the ledger sheets.