I have seen lots of business owners get into the business and immediately start purchasing equipment. This can set you up to fail before you even start. I’ve also seen the other side, where the owner is mowing 6 days a week 10 hour days, but still using a 21″ push mower.
When you purchase too much equipment before your ready it can sink your business. Lots of people jump into the business and think that they need to buy new equipment for every type of job they do. You can outfit a crew for $10,000 (used truck-5k, used commercial mower-2k, hand equipment- 1k, trailer-1k, etc.)dollars, or if you buy all new top of the line equipment your costs could go up to over $50,000 (50k for just a nice diesel truck brand new) for the same crew. When you are a large company there might be good reasons to get the more expensive equipment, but when you are starting out you aren’t ready for a cash outlay that big.
Starting out never lease your equipment, or take out payments for an equipment purchase. This is a personal opinion, but I would never recommend getting loans or leases to start out in the business. There are lots of reasons that businesses don’t work out, and cash gives you the flexibility to adjust and change plans as you go through growing pains in your new business. Some companies set themselves up to fail before they even cut the first lawn because of cash flow mistakes.
Start by renting
If your taking on new jobs that require equipment that you don’t have rent it. Rentals are perfect for one time jobs that you take, or seasonal jobs like aeration. At some point be ready to buy the equipment, but don’t feel like you have to always buy equipment for any job that you do (some rentals that I have used are: United Rentals, Sunbelt rentals, and Rentals Unlimited).
Renting also helps you avoid costly maintenance. If you buy a mini excavator used you could end up spending a lot more in maintenance costs than you spent on the purchase price. Changing a final drive is about 2k, changing a set of tracks might run you 4k. If the machine has high hours, or was abused in it’s past life you could easily be looking at a 15k repair bill. If you aren’t ready to fix something like that, or don’t keep cash in reserves for those types of problems renting large equipment is the way to go.
Buy your equipment used?
If it’s a machine that you use everyday you should buy it (see the analysis at the end of the article). Mowers, blowers, trimmers, and blowers should all be bought. The only time I would recommend renting daily equipment like that is when you have a breakdown.
Larger equipment is harder to make a decision on. Typically excavators, and skid steers only live for about 5,000 hours. Typically you have minimal problems under 3,000 hours. I have been helping a company with the purchase of a mini excavator recently and found out that the purchase costs per hour are approximately $20 for 3000 hours. Used equipment was about $13.00 per hour ($33,000/2500 hours left on a 500 hour used machine). So in this case the used equipment came out at a better purchase cost per hour. Because the equipment is used there may be more maintenance costs involved, but I think they will probably be minimal on a 500 hour machine.
Owning equipment can make you more competitive
When you price a job for a customer don’t forget to include the costs of your equipment in the estimate. If you use equipment rarely then you need to include it in your estimate to the customer. While you are doing your research on your equipment you can get a jump start on getting your bidding/budgeting numbers. Remember a piece of equipment like this will cost about $5 per hour to run and maintain. So you would charge about $25.00 an hour in addition to your normal hourly bidding rate (usually about $50.00 an hour).
So in this case I would charge the customer about $75 per hour that I used this equipment with 1 person operating the machine. If I had to rent the equipment I would just need to gas it up, so my running costs would be about $2.00 an hour, and the equipment cost would be about $38 per hour (310 per day for 8 hours of time on the rental). So your bidding costs would be about $40 +50, or $90 per hour with one operator.
Obviously you can give a lot more competitive bids if you own the equipment, but only buy equipment if you know that you will use it often for lots of jobs. Equipment depreciates (goes down in value), so be sure that you have the work lined up before you buy new equipment.