By Dan Gundacker
The most profitable landscape businesses are those that can manage operation costs, cash flow and mitigate risk. With cooler temperatures consuming many parts of the country, now is the perfect time to organize your finances and plan out what equipment and supplies you may need this spring.
As a landscape contractor, you may find yourself in an interesting position heading into 2013. You may be looking to purchase new equipment to upgrade or replace your aging fleet, which the slow economy has forced you to keep longer than normal. You might also be looking to improve jobsite efficiencies or take on more work.
But how do you intend to purchase new equipment? You’ll need a way to manage your cash flow and cover your business’s day-to-day expenses. The answer is simple — financing.
Whether you’re a long-established company or just getting started, cash-flow management and credit availability are vital to the landscape business. Every professional groundskeeper, landscaper or commercial mowing operation is different, and no two have the same needs. It’s important to look for a wide range of competitive finance options to help optimize your cash flow and acquire the equipment and supplies you need. New equipment means more reliability and reduced maintenance costs, which helps free up capital.
Take a minute and think about everything that goes into operating your fleet of mowers — the crew, fuel, maintenance, parts, and attachments to name a few. If you understand your exact operating costs, your bids will be more accurate. You may want to consider matching your finance terms with the equipment warranties to minimize repair expenses.
When examining your expenses look at revenue by month. Most operations have their “busy” and “slow” seasons. In this scenario, it’s particularly important to look at the months in which revenue is tight. When you go and meet with your dealer you’ll have a plan in place and the ammunition you need to choose the right financing option for your business.
You’re ready to make the big purchase. Now what? Here are a few financing tips to keep in mind when speaking with your dealer:
Seasonal payment option
A seasonal payment option allows contractors to choose the option that’s right for them and is available on regular installment notes or leases. The benefit to contractors is that you can choose the months in which you will have the lower payments. That way you can utilize your major assets to manage cash flow.
If your business runs primarily from April through October, you can lower your payments from November through March. Payments can go as low as 1 percent for those “slower” months and provide you the flexibility needed to manage other business expenses. You can choose up to six consecutive months during each year of the contract term when you’d like to make a lower payment. At the end of each year, you will have paid off about the same amount of principal and the interest expense will be very close to a normal level monthly finance plan.
If you think about it, this type of payment option allows you to use your assets wisely to manage cash flow. The impact of a seasonal payment on one machine may not be great, but think of what it could do if you did this with your entire fleet. It sure beats having to hit a line of credit and have added interest expenses.
Skip payment option
If you would rather not make payments during the slow seasons then the skip payment option is right for you. A skip payment option allows contractors to skip up to three consecutive monthly payments a year. This may be beneficial for those contractors that prefer to take a few months off or focus on snow removal in the winter. To utilize this option, a down payment may be required and often three payments must be made prior to any skip period. This is similar to the seasonal option in that about the same amount of principal and interest will be paid at the end of the year — the difference being that instead of six months of lower payments, you get three months of no payments at all.
An underutilized option, leasing allows contactors to take advantage of the residual value of equipment to reduce monthly payments. Leasing equipment can free up your cash and increase liquidity. Leasing typically requires less cash up front and the monthly payments are generally lower. Other benefits include the efficiency of using new equipment and keeping employees happy. Who doesn’t enjoy running new mowers? Not only will your operators appreciate newer equipment, think of the impact on your repair costs. Having newer, professional-looking equipment will benefit your image with your customers as well.
When weighing your finance options, look for a revolving plan that fits the needs of your business and will help manage cash flow. Having a revolving card that your crews and maintenance employees use to pick up parts and get equipment serviced will save you time. Some manufacturers also offer contractors seasonal programs and terms. This will enable you to buy goods such as fertilizer in bulk before your busy season, and you’ll rest easy knowing your supplies will be there when you need them.
Also, bundle the products you will need for each piece of equipment and include them in the note or lease. Your dealer can help you determine the quantity needed. Common items such as a bagger, replacement blades, air filters, oil filters, and belts are included up front. Now your payment represents your cost to operate the equipment over that time period, and, best of all, it rides the equipment finance rate. This saves trips to the dealership, which means more uptime.
As you crunch the numbers this winter, hopefully these simple tips can help your business and equipment go the extra mile.
Dan Gundacker is a John Deere Financial product marketing manager who specializes in serving commercial landscapers.<ITAL]