With the current labor shortage in our industry, landscape contractors have had to be creative and find ways to do more with fewer people. For example, the crews responsible for mowing the grass at New Zealand’s Auckland International Airport use a large, one-of-a-kind mower that mows 646,000 square feet of grass per hour. It needs just one person to operate it.
Imagine if you had a mower that allowed just one person to do the job of an entire crew. Think about the time and labor you could save. As mowers become more high-tech and efficient, this is becoming more of a reality; contractors can really benefit from these cost-saving advancements.
Perhaps you’d like to acquire a piece of equipment of this sort. You can go out and buy the machine, or you could lease it for a set amount of time. You could even rent one first to see if it works for you. All choices have their pros and cons, but the decision regarding which method is best rests with you.
Should you buy?
Buying equipment may be the least expensive option in the long run. When you buy, the payments typically carry lower interest rates than leasing. Also, you’ll eventually pay the equipment off, which can simplify your business expenses. “When you’re leasing, it’s ongoing, never-ending,” said Steeley Scofield, owner of Scofield Landscaping in Jacksonville, Oregon. “I’d prefer to own my equipment and not have that cost right out of the door.”
But before you run out and buy that gleaming, new machine, ask yourself if you’ll be using it day after day, job after job. Also, ask yourself if that piece of equipment is right for your needs. Will it make your daily work load easier? Can you see it being useful a year or two down the line? If the answer to any of these questions is “no,” then hold off, because you don’t want it taking up space and gathering dust in your trailer or warehouse. If the answer to these questions is “yes,” then a purchase is definitely the way to go.
On the other hand, some contractors also like the option of buying specifically because they’re not going to be using the equipment on a regular basis. They buy under the reasoning that they’ll take longer to wear out the equipment, and eventually finish paying it off, thus maximizing their ROI. “We purchase equipment we don’t use so often,” said Mark Bella, owner of Bella’s Lawn and Landscape, based in Toledo, Ohio. “We don’t put as many hours on it. We keep it longer and it stays in better shape.”
The decision to buy or lease is also affected by the climate. For instance, KEI Enterprises, headquartered in Oak Creek, Wisconsin, buys its mowers because it operates on a shorter mowing season than other contractors further south. It snows often in Wisconsin, so the company’s mowers aren’t used as much. “We can get about 2,500 to 2,800 hours out of a mower over seven or eight years,” said Joe Kujawa, KEI’s executive vice president. “We’re not using them nine or ten months out of the year.”
As you’re probably beginning to figure out, a key factor in the decision to buy centers around the turnover of your equipment. The average service life of a mower is between two to four years. Will the amount of business you pull in during those years outweigh the amount you pay to own the equipment?
At the same time, consider that purchased equipment can be useful even after it’s past the point of repair. Many contractors have a turnover program where they take their worn-out equipment and strip them down for parts they can use on their still-operable machines. It can be a money-saving option for businesses that have their own it would only be effective if you have a lot of equipment that’s of the same make and model. Different brands often use different parts, so if you want to take advantage of this ‘cannibalization,’ plan your purchases accordingly.
But then comes the question of whether or not running a unit into the ground is a wise choice to begin with. As equipment ages, breakdowns become more frequent. This can hurt your business, as repairs to the equipment can become expensive, and workers lose hours that would be better spent at a jobsite. Weigh the costs and benefits of a turnover program when you buy equipment.
And don’t forget about your immediate needs, either. The upfront costs, such as down payments, are typically higher when you buy a new unit, and that must be factored into your bottom line. Can you afford those costs now?
Should you lease?
As an alternative to buying, you can lease equipment and pay by the month for a contractually-set length of time. The interest rate on the payments is often higher, but when the lease is up, you can turn in the machine and walk away, or lease a new one. In addition, if you fall in love with the leased equipment, many dealers offer lease-to-buy agreements that let you buy out and keep the unit when the lease runs out.
Leases can last up to a year or more. The rule of thumb is to get longer leases for larger pieces of equipment. Earth-moving equipment and large trucks will have the longest leases, for example.
Some contractors prefer to lease equipment that they use on a regular basis, because the ability to trade it in after a few years reduces their downtime and saves them money in the long run. This is especially important to Bella, who doesn’t have an inhouse mechanic at his company. “We lease the equipment we use a lot, like lawn mowers,” he said. “You get new stuff every two years, keep uptime and minimize downtime.”
As you consider leasing equipment, also consider how modern your fleet is, as compared to your competition.
While some contractors may find it wasteful to give up a unit that’s still in good condition, you can trade it in for cutting-edge equipment. This will allow your crews to complete jobs faster and give you an edge over your competition.
However, make sure you read the fine print on your leasing contract. You should be comfortable with the duration of your lease, and the monthly payments, as well as any amenities that may be offered on the agreement. Also, be on the lookout for whether or not a security deposit is required, and if there are any penalties for putting extra miles or wear-and-tear on a machine. Minor damages can add up at the end of a lease, even if they weren’t your fault.
Making sure you need and like the equipment is an even more crucial factor for leasing than for buying. If you dislike your purchased machine, you can at least pay it off quickly and get rid of it. If you wind up leasing a machine which doesn’t work for you, not only does it take up space, but you’ll be paying for it until the lease is up, or perhaps incur a large penalty.
Should you rent?
Buying and leasing are great options for landscape contractors who are able to figure out their longterm needs—over months and years. But there are also times when you have to have it now: you need a ‘quick fix.’ A rental could be a wise choice for urgent needs.
Suppose a vital piece of equipment on a jobsite breaks down. Even if you have a full-time mechanic at your company, it may take too long to repair the item and get it back onsite in a timely fashion. In a crisis like this, it may be faster and cheaper to rent a unit, so you can quickly get the job back on track.
Renting equipment is also good for other short-term needs, such as when you’re at a job and find that your fleet is just a little too small to handle all the work efficiently. In that case, you can rent an additional mower or a trencher or two to finish the job. When you’re done, you just return them. “When we need a second piece of equipment on a job, we’ll rent it,” said Colleen Smith, office manager at Landmark Landscape Contractors in Northampton, Pennsylvania.
Renting is also great for the types of jobs that only pop up once in a while, allowing you to take on additional business without having to hire a subcontractor. Maybe your company doesn’t always do trenching, but one job you’re working on calls for it. Renting once in a while is cheaper than buying, if the unit won’t be used enough to earn that money back. “We don’t need an excavator all the time,” said Scofield. “We just rent those as needed.”
Another benefit of renting is that you can ‘try before you buy.’ Have you been eyeing a machine for a while, but aren’t sure if you could justify the cost? Rent it for a day or two, and put it through its paces. If it can get the job done quickly and easily, then you know you can buy or lease it at a later date. It’s a great way to field-test a new brand name or model to see if it would be a good addition to your fleet.
Some caution is required, though.
The cost of rentals can get high if the jobs you’re using them for run on too long. Also, even though rented equipment isn’t yours, it pays (literally) to take care of it. You don’t want to incur damage fees, or start a bad relationship with any dealer. You may need them again later on down the road.
Even with this advice in hand, it’s important that you do further research, based on your area as well as the current state of your business. Where do you see it going in the foreseeable future? Are you looking to expand the types of jobs your company can take on?
Don’t be afraid to ask questions and do your research prior to making those important major purchases or leases. The tax advantages of the different options can also save your company a significant amount of money. It would be well worth it to consult with your accountant or lawyer to see how buying or leasing—or both—can work for you.
As you can see, finding the right solution to your company’s landscape equipment needs is a complex one, and unique to your situation. Do the necessary homework so you can spend your money wisely. That way, you can better focus on winning bids and getting work done. Making the right decisions can give you a new lease on your professional life.