Feb. 17 2020 06:00 AM

Strong financial plans help pros get the most out of future new equipment purchases.

Now is the time to make decisions and plan for the upcoming busy season so that you can get off on the right foot. Among the important decisions that you’ll be making are those related to equipment planning and buying.

Green industry consultant Fred Haskett, head harvester with The Harvest Group, says that the equipment buying process should always begin by evaluating what you already have. Identify which parts need replacement in order to keep equipment running and what pieces of equipment need to be replaced entirely. It always helps to establish “buffer equipment,” which is backup equipment that can be used when a machine is undergoing repair. Equipment that is nearing its end but still has some life in it can work well as buffer equipment and buy you time, says Haskett. This can be a smart financial move that will help you maximize existing equipment.

In terms of equipment planning, your current labor force situation might also come into consideration, especially taking into account the industrywide shortage. As you consider how much equipment you might need for the upcoming season you might be thinking about whether you have the labor to sustain your purchases and grow your business, suggests David Crary, president at HindSite Software. Look at whether new equipment could make you more efficient so that you don’t need as much labor.

No matter what you do, you should not just purchase the cheapest equipment you can find, warns Haskett, who says he has made that mistake himself. He learned the hard way that durability, performance and the ability of your local dealer to support you are also incredibly important factors that must be weighed with any equipment purchases.

Smart Financing

When it comes to financing, Ken Schaefer, market president of Home Federal Savings Bank, which works with a lot of small businesses, says you can typically finance 75% to 100% of the equipment over a three- to five-year time period, depending on the physical life of the asset. This can help small businesses afford larger equipment purchases when the need is there but the financial timing is an issue.

“In terms of working with a lender, I would recommend forming an ongoing relationship with a banker and to make sure you know who you’re working with,” says Schaefer. “If you’re looking for a loan for a commercial bank, be prepared to provide the bank with financial statements — usually a business tax return. You might also want to provide a budget of a one-year projection. Most transactions will carry a personal guarantee, and you’ll want to give the banker a copy of your personal tax return and a personal financial statement.”

If you’re planning ahead for the future, it may also make sense to set up a preapproved line of credit, says Schaefer.

“Then, if you find the equipment that you really want and need, you can act on it, knowing that you have the financing in place,” he says. “If you’re a larger operation that is buying $200,000 to $300,000 worth of equipment each year, having something set up in advance makes a lot of sense.”

Small changes boost profitability

Since your equipment is directly linked to your profitability, you might be wondering if there are changes you can make as you plan for the new year. Haskett says that even small changes can make a big difference.

“For one, you always want to make sure that you have your truck fully equipped,” Haskett says. “You want to stay on top of making sure all of your equipment is fully maintained and continually treated well by your people. This isn’t something that will just happen. It takes ongoing diligence on your behalf.”

But for irrigation, specifically, Haskett says that the biggest downfall is not equipment failing but not having enough of the right supplies.

“What’s deadly to profitability in the irrigation industry is constantly running back and forth from the supply house,” he warns. “You need to have a comprehensive list of what you consume on a regular basis and an inventory system for maintaining backstock at the shop and on the truck. The biggest investment I had in my own business was shelving and a racking system in the truck that kept everything sorted and labeled so that we could quickly identify and inventory supplies.”

Haskett says that restocking the truck on a routine basis should be part of a system that you already have in place.

Crary adds that software can also be incredibly beneficial when it comes to tracking and maintaining equipment and in turn boosting profitability.

“You can definitely run your business more efficiently with software,” he says. When it comes to equipment, you can track usage and hours. You can put a GPS on equipment that directly links to your software so that you know when something needs an oil change without having to just rely on that red light. In the end, that means you can get more out of your equipment and save a lot of money as a result.”

Looking to the end of the year

Of course, sometimes it can pay off to wait. It’s never too early to start planning ahead, and if you can hold off on equipment purchases, it could potentially benefit you to wait until the end of the year. Before making that decision, it makes sense to know how equipment purchases are going to impact your taxes.

“When you buy a piece of equipment, you can take accelerated depreciation, which will give you a big tax deduction,” says Schaefer. “So, if you have not used up all of your Section 179 depreciation, that’s an attractive way to lower the cost of buying equipment.”

Haskett says that green industry equipment-buying timelines should start off in August with a discussion over what equipment is needed for next season. Then, a plan should be drafted in September or October after looking at the company’s tax position and projected growth.

“You’re basically sourcing equipment for two purposes — to replace equipment due to wear and tear that’s needed to sustain current operations and to support brand-new growth,” Haskett says. “If you start looking at your tax position and projected growth by October, you have two months to source replacements if it will benefit you taxwise to make these purchases in that same year.”

Crary says there can also be incentives to working with your distributor at the end of the year.

“Manufacturers often give distributors incentives to make certain sales goals,” Crary says. “At the end of the year, they might be a little short of their goal. So, you can potentially get a great deal just so that they can meet their number. Timing is everything. Some distributors will even say, ‘Buy this now but you don’t have to pay until next summer.’ If you can wait, it could be financially worth it.”

Lindsey Getz is a contributing editor to Irrigation & Green Industry and can be reached at lindsey.getz@yahoo.com.