By: Dave Berner
Cash is king in professional landscaping and lawn service businesses, and cash flow is critical. The choices you make on equipment ultimately determine whether you can keep the cash coming in and going out of the company.
There are no hard and fast rules concerning the buying, leasing and renting of your hardware, and every Green Industry business owner must run the numbers to see which works best for him/her. Considerations include how much they’ll be using the equipment (and how often), maintenance/repair and storage.
Dyle MacGregor has owned and operated Keep it Green Landscaping in Fair Lawn, N.J., for 22 years. He’s kept his small business strong by adapting simple rules about equipment.
“We know the life span of things because we’ve been in business so long,” says MacGregor. “We know the real value of equipment comes after the loan payments are done.”
MacGregor buys his big equipment, such as trucks, from the dealers he’s worked with for years. “I still want to kick the tires,” he says. “It’s about product loyalty and the deals I can get.”
But MacGregor cautions landscapers to weigh all options. He believes too many businesses buy a piece of equipment just because the deal appears “too good.” ” If you’re not going to use the equipment regularly, buying may not make much economic sense.”
“Whatever helps to preserve cash flow is what works best,” says Bruce Allentuck of Allentuck Landscaping, a 60-man operation in two locations in Clarksburg, MD. The company provides both commercial and residential landscape construction and maintenance.
Allentuck rents backhoes, tampers and chippers because his crews don’t use them enough to justify purchasing them. Mulch blowers and mowers are another matter, however. “You’ll spend several thousand dollars to buy a good mower or blower, and if it’s maintained properly, it can pay for itself over and over,” says Allentuck.
Before making a buy, rent or lease decision, landscapers should evaluate their business and focus on their money-making services to get in position to evaluate which equipment to buy and which to lease or rent.
When renting works
“Landscape businesses can be small and undercapitalized, and some businesses can’t afford to own equipment,” says Bruce Conrad, Business Development Manager at Caterpillar Rental Services. “If your business is highly seasonal, you may not use equipment enough to own it.”
Maintaining it can be a cash drain. “Plus,” says Conrad, “if you rent, you can transfer that risk to us when your business has peaks and valleys.”
Another national rental chain agrees.
“On some larger equipment, the right lease or purchasing terms might justify the investment, but with small to mid-size equipment, rentals are almost always the more efficient way to go,” says Carlo Cavecchi, Chief Executive Officer of Denver-based HSS RentX. “I have yet to talk to a landscaper or turf pro who would rather be sharpening blades and replacing belts on equipment he purchases than be out there on the job making money.”
All in all, that’s certainly true. But according to some landscapers, renting is usually best for the small operator or the landscaper just starting out.
“We don’t do much renting,” says owner James Weidner of The Weidner Group, North Ridgeville, OH. “When we were small we did. You have to because you can’t afford to buy things. These days, we would rather make a loan payment than a rental.”
Let accountant tag along
“We are landscapers. That’s what we do. And that’s why we should all have accountants,” says Weidner. He believes before any business owner decides on how to handle his equipment, he/she must have a professional assess the business and be on the lookout for hidden costs in leases, the details of purchase agreements and the fine print in rental contracts.
“An accountant is just better at this,” says Weidner. “He’s going to negotiate better, and I would strongly suggest you take an accountant along with you when you make a deal.”
The Weidner Group leases much of its large equipment such as Walker mowers and hydroseeders, and assesses its needs each spring. “We don’t buy anything until we absolutely need it,” adds Weidner.
“Leasing, per se, doesn’t work in our industry,” says George Kinkead, President of Turfco, a landscaping equipment manufacturer and seller. Kinkead believes the reason is simple—no one wants the equipment when you’re done. “The blue book on landscape equipment is marginal at best. No one in the industry has come up with a good way to determine normal wear and tear.”
Kinkead believes the sophistication in the landscaping market has grown hugely. Landscapers are smarter and more business savvy, whether they have accountants or not. Plus, he says, with his company, along with others, landscapers can get free trial periods or demos to see how a particular piece of equipment fits their business before actually buying it.
Exactly, says Caterpillar’s Conrad. “Renting is a good way to try equipment before you decide to invest in it.”
Despite these incentives, most landscapers say determining a customer base is key to buying, renting or leasing equipment. And using an accountant to determine how to balance the core business with needed cash flow is the best approach.
The trend
“Take a look at your business model and decide what you want to do, ” says Turfco’s Kinkead. “If it’s primarily mowing, then buy mowers. If you’re a service guy, and need different kinds of equipment, then buy some and rent some.”
No matter how you lean, you have to be flexible, meaning that owners match their equipment needs with their projects.
“A landscaper’s need for certain types of equipment can go from zero to full-time on a moment’s notice. We put a top-quality machine in their hands, ready to run, and as soon as it stops earning money for them they hand it back,” says Cavecchi of HSS RentX. “You can’t beat the rental option for sheer cost effectiveness.”
Adds Bruce Allenteuck, “Whatever preserves your cash flow is your best choice.”
The newest wrinkle in the buy, rent or lease debate is the growth in information technology. Landscapers and lawn service company owners are beginning to adopt the Internet for information and products.
“We’ve seen a slow but steady upward trend in online transactions,” says HSS RentX CEO Cavecchi. “If the customer knows what he wants—model, engine capacity, attachments—then there’s no vagueness to the decision, and online booking can be convenient.”
At Caterpillar Rental Services, all rental sales are done through outside sales from rental stores. But the company Web site is used by customers for examining products and making decisions about equipment.
Those who sell equipment, however, say customers still want to work face-to-face with a dealer or salesperson who can answer questions and maintain a good working relationship. In this case, the Internet is used more for researching equipment, not buying it. Still, the online sites are becoming popular places for initial shopping decisions and for sorting out the details and styles of equipment.
The bottom line
The decision to rent, buy or lease is an important one that can’t be made without comparing products and deciding what your business will be providing. For instance, buying aeration equipment if you’re primarily a mowing company may not make sense.
“There are three things you have to think about,” says Turfco’s Kinkead. “One, the typical lifespan of the equipment you’re considering. Two, determine how the equipment fits into your business. And three, if you decide to buy, what’s the best way to do it? Your monthly payment shouldn’t be the basis of your decision.”
It’s all about the cash in the company coffers, and at the same time using reliable equipment. If renting keeps the cash flowing, then do that. If buying or leasing equipment works for your company, then do that. The optimum approach may be a mix of all three.
“Look at price, not payments,” says Jim Weidner of the Weidner Group. “Look at longevity of equipment. Look at the loan. Look at how much you’re going to use something. And consider the whole picture.”
