Run your numbers before putting down your cash to acquire costly pieces of landscape equipment
Buying, leasing or renting big-ticket landscape equipment involves examining the financial implications of each option so that an owner makes the best use of their company’s capital resources. You will need to consider many financial variables in working a thorough cost analysis.
Ultimately, and in simplest terms, the decision comes down to cash. Do you have enough cash to buy needed equipment and still maintain adequate cash flow to meet expenses and fund continued operations and growth?
There are special considerations in the landscape business in regards to each company’s cash position, the most obvious being the highly seasonal nature of the business, but also unpredictable weather and unexpected changes in regional markets or the U.S. economy, in general. Case in point: the rapid collapse of the housing market starting in 2007. It caught the U.S. public, including most landscape companies, by surprise. Some landscape firms vanished; others survived by rapidly diversifying into other service lines.
Beyond that, not everyone’s financial situation (including credit worthiness) and equipment rate of use will be similar, further muddying the decision-making process.
Merry Acres Landscaping and Lawn Maintenance updated its fleet with new Gravely zero-turn mowers.
PHOTO COURTESY OF MERRY ACRES.
Cash flow even more critical
No one option in the buy, lease or rent equation is inherently better than another. Owning, leasing and renting all have their unique pros and cons. That said, choosing the best option has grown in importance since the 2008 recession and housing bust. There are many reasons for this, including: the relative dearth of landscape construction projects; stringent bank lending policies; and construction/installation companies shifting to maintenance and maintenance companies diversifying and undertaking installations as opportunities arise.
Jon Dozier and Jarrett Martin, partners in 10-year-old Merry Acres Landscaping and Lawn Maintenance, were in a position to upgrade their mower fleet, and opted to go with Gravely LP260 zero-turn mowers. Attracted by the lower price of propane fuel and convinced that gasoline prices will go higher yet, they decided upon the LP-fueled models for their Albany, Ga., operation. They figure that, burning 12,000 gallons of gas a year, the upgrade will pay for itself and will actually improve the company’s cash position. They also factored in the costs savings that clean-burning propane offers because of fewer oil changes and related engine maintenance on the new units. The partners made their decision for the upgrade after carefully reviewing their financials – where they are and where they want to be.
Usually, it’s wise to review major equipment decisions with your financial advisor or accountant. Do you find yourself so busy managing employees, responding to customers and attempting to make sales that you lose focus of your equipment? How much it’s used? Its ROI? As a rule, if you’re not using a piece of equipment 50 percent of the time, consider renting it.
Yet, most contractors love buying and owning equipment. And, in many instances that’s the best option
For example, if your business is primarily commercial maintenance and you have an established customer base, owning your mowers, aerators and other daily-use equipment usually makes more financial sense than leasing. This is especially true if you maintain your equipment well. However, for units you use periodically – chippers, trenchers, backhoes and excavators – perhaps it often makes more financial sense to rent.
Renting is on the Rise
by Ron Hall
Renting, a cost-effective and increasingly popular option for landscape companies with short-term needs for equipment, is getting easier thanks to a partnership between a relatively new company and Home Depot.
Compact Power Equipment Centers, LLC, founded in 2008, now has equipment rental centers in 280 select Home Depot Tool Rental locations, and expects that number to grow to more than 400 by the end of the first quarter 2012.
If you’re not going to use a piece of equipment more than 50 percent of the time it’s usually more cost-effective to lease or rent it rather than buying it.
PHOTOS COURTESY OF COMPACT POWER EQUIPMENT CENTERS.
“Home Depot is an awesome partner,” says Andy Lewis, marketing director of Compact Power. “It builds big stores in areas that are growing and developing and that’s where landscapers are working. That’s where we put our equipment.” The partnership with Home Depot Rentals allows Compact Power to offer rentals on everything from compact utility loaders to mini-excavators to chippers, shredders and skid steers.
Lewis says that rentals are about evenly split between DIY consumers and landscape professionals, although some of the towable equipment is obviously targeted for professional use. “A Terex PT50 skid steer loader is not something an inexperienced operator should be renting to put a pool in their backyard,” says Lewis.
To that point, Lewis says that Compact Power is providing safety training to rental personnel at each of the locations where it has equipment.
“We train the associates on how to use the machines, how to check them in and how to check them out, always with an eye towards safety. It starts in the parking lot, ensuring that the equipment is hooked up safely, the brake lights are working and the machine is racheted down correctly. It doesn’t stop until the machine is returned,” says Lewis.
To date trenchers, chippers/shredders, mini-skid steers, mini-excavators and smaller skid steers have been the most popular rentals at the centers. The range of equipment continues to grow. In March 2011, Compact Power began offering Terex PT30 and PT50 loaders, TSR50 skid steers and TC16 mini excavators, and in May partnered with Kubota Tractor to provide its K008 excavator and BX25 tractor/loader-backhoe to 100 Home Depot locations.
Renting, which is growing because landscape professionals are seeking to keep their overhead low and are taking on a wider range of services to remain competitive, is an increasing popular option for many landscape pros, says Lewis.
“Until their project pipelines become full and reliable again, that will continue,” he opines.
A note of interest: The president of Compact Power is Roger Braswell, longtime green industry entrepreneur, who, more than 30 years ago founded Fort Mill, S.C.-based Southern Tree and Landscape that became one the Carolina’s largest landscape companies. In the mid-1990s, Southern Tree and Landscape became a founding partner of publicly traded LandCare USA, a rollup of some of the top regional landscape companies in the United States. In 1999, ServiceMaster acquired Landcare USA. From then until now, Braswell has remained actively involved in the equipment side of the green industry.
To learn more about Compact Power Equipment Centers, LLC, visit Compact Power at www.compactpowercenter.com.
When renting works
Renting, which is usually short-term, is attractive to contractors for some compelling reasons. Be aware, however, that the benefits of renting diminish rapidly the longer you rent. Some good reasons to rent include:
- You can rent for hours, days, weeks or months.
- You get exactly the machine you need for the job at hand.
- You have the option of adding equipment quickly to finish a job(s) faster.
- The rental store is responsible for storage, long-term maintenance, repairs, parts and insurance.
- Many rental companies have 24/7 assistance.
The positives of leasing
Leasing is like long-term renting except it involves periodic (usually monthly) payments and is often written for a term not to exceed the useful life of the leased unit(s). It’s appealing when the lessee doesn’t want to tie up the cash to buy the equipment or doesn’t want the hassle of disposing of it at the end of its useful life. The equipment returns to the lessor at the end of the lease term. In most cases, the lessee agrees to maintain the equipment.
The use of leasing has increased and there are many types of leasing plans offering a wide range of schemes, usually three to five years. While finance companies, insurance companies and banks do most of the leasing, contractors can sometimes lease equipment directly from manufacturers that have their own leasing divisions. Major manufacturers of landscape equipment have various financing programs.
Contractors lease equipment because it usually requires no down payment, month-to-month costs are lower than buying because they’re spread over a longer period of time, and the equipment is newer and more productive.
The downside is, of course, that at the end of the lease period the equipment returns to the leesor and the lessee loses the economic value of the used equipment. Often there’s a “buy” provision at the end of the lease.
If you’re considering leasing, know exactly what you’re committing yourself to. Study the agreement carefully. Become intimately familiar these items in any agreement:
- payment amount and frequency;
- what happens to the equipment at the end of the lease term;
- who is responsible for maintenance;
- what happens and the schedule of value of the equipment for insurance purposes in case of serious damage;
- renewal details; and
- cancellation penalties.
Whether you intend to return the equipment to the lessor or buy it outright at the end of the lease period, it makes no sense to beat the equipment to death. Why risk lost production as well as prematurely turning units into scrap?
If you are considering acquiring expensive landscape equipment you have some very important decisions to make. Making a snap decision could end up costing you plenty. Generally, the best course of action is to work with your financial advisor or accountant to consider all of the financial ramifications (including depreciation, taxes, etc.) before committing to one course of action or the other.
Buying, renting and leasing – all have their place in the landscape equipment puzzle. Your job as an owner is to choose the right option at the right time for the right reasons.
Ron Hall, who has spent the past 27 years writing about the green industry, is editor-in-chief of Turf magazine. Contact him at [email protected].