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Ric
11-11-2010, 09:55 AM
yo

I want to bring up the subject of Owner Equity to Profit Ratio. The reason is I believe many don't realize they are working for free or cheaper than they realize.

ROI stands for Return On Investment and every business must have investment of some sort. The larger the business normally the larger the Investment. If you barrow money you have to pay interest. If you bank your money you are paid an interest. So are you accounting for that Interest on your investment in your business when you figure your profit at years end. You might be very surprise at your profit margin once you pay your self interest on your investment of owners equity.

In My case the reverse of this is true to some extend, but I am still behind the 8 ball. My investment has long been written off and the value of that investment in equipment is decreasing in value. I am making no provisions for replacement equipment with an equipment account. Therefore part of what I take out of the business is in fact a percentage of Owner Equity, Not Profit.

One of the points I would like to make is. In some cases, in fact many cases your employees are making more money than you in the form of salary. Your higher income is actually interest income.

RigglePLC
11-11-2010, 11:22 AM
What do you think is a good ratio, Ric? And if you drive your truck for personal transportation--can you count that as half business, and half personal? Suppose you had a 20,000 truck and 5000 in equipment--minimal, you could spray weeds with that. And probably hit 60,000 in sales. But a (one-person) mowing plus spraying company would probably have about 50,000 in equip. And depreciation would cost you about ten percent per year.

Ric
11-11-2010, 12:31 PM
What do you think is a good ratio, Ric? And if you drive your truck for personal transportation--can you count that as half business, and half personal? Suppose you had a 20,000 truck and 5000 in equipment--minimal, you could spray weeds with that. And probably hit 60,000 in sales. But a (one-person) mowing plus spraying company would probably have about 50,000 in equip. And depreciation would cost you about ten percent per year.

Riggle

My main point here is to realize how your profit level is derived. It is not all profit margin and Investment interest is a factor

Any time your equipment can make you more than the interest from the same amount of money plus Depreciation and your overhead and pay scale it is a winning ratio. Each piece of equipment has a different life span and income factor. I believe a 10% depreciation factor is WAY TOOO LOW. I prefer double declining balance over the shortest expected life period. It is better for taxes.



When buying or selling a business of ANY KIND, It is not the assets that make the price. It is the ROI (Return on Investment) that dictates the selling price.
Take a company with 1/4 million in equipment and a Million in gross sales. What is it worth if it only has a 60 K profit margin for the owner??? Maybe two years income which isn't the cost of the equipment. In that case the parts of the business are worth more than the whole.



AS for dual use personal and business equipment, That is the perk of being in business. My children owned stock in my Corporation and were board members. As Officers in the company they got perks in the form of Education assistance from the company. They also had Company cars.

Harley-D
11-11-2010, 01:22 PM
When buying or selling a business of ANY KIND, It is not the assets that make the price. It is the ROI (Return on Investment) that dictates the selling price.
Take a company with 1/4 million in equipment and a Million in gross sales. What is it worth if it only has a 60 K profit margin for the owner??? Maybe two years income which isn't the cost of the equipment. In that case the parts of the business are worth more than the whole.


I agree with you Ric but that changes the subject to why someone would buy the business. They may buy it for the pieces and just sell off the parts rather than continue to run the business.

I think the ROI for a business that has been born from the owner is worth more to the owner than any investor would pay. (Remember we are subtracting AR which plays a big part in buying any form of company that can directly produce revenue) Blood, sweat, and tears. I talked to a lawn dr franchisee and he wanted what i considered to be about 3 times what the business was worth. Because he started it 13 years ago and figures he is owed the nest egg retirement lump sum. Not gonna happen.
I'm not an accountant but you have to remember there's an income statement and a cash flow statement. Cash flow can look great while a company is failing. Investors will sometimes consider a company's EBIT for a guage of value. (Earnings Before Interest and Taxes) Interest can go both ways. Interest you pay is tax deductible while interest you earn can be credited toward profit. It goes much deeper than just ROI. The word investment means more to people that start businesses than it does to accountants.
Good thread!

Will P.C.
11-11-2010, 04:51 PM
I also want to bring up the 'present value of money' idea. Money you have in the bank/investments is earning interest. Some guys like to go out and pay cash for a new truck/equipment. I prefer to finance it with 0 interest rates or extremely minimal. Look out for promotions like 0 interest for 36 months. You can let what you have in the investments keep on making money while getting a new piece of equipment at the same time.

Ric
11-11-2010, 05:12 PM
I also want to bring up the 'present value of money' idea. Money you have in the bank/investments is earning interest. Some guys like to go out and pay cash for a new truck/equipment. I prefer to finance it with 0 interest rates or extremely minimal. Look out for promotions like 0 interest for 36 months. You can let what you have in the investments keep on making money while getting a new piece of equipment at the same time.

Will

Leasing has better tax advantages. However you generally pay more when leasing. But I understand the advantage of working on barrowed money. Having that nest egg for an extra shot of Cash Flow can also mean the difference of Make it or Break it.


I agree with you Ric but that changes the subject to why someone would buy the business. They may buy it for the pieces and just sell off the parts rather than continue to run the business.


Good thread!


Honda Dream

I hear you but sometimes you make decisions based on gut feeling and not proper business protocol. In the case of buying Lawn account, These new accounts might be in gated communities and give you the inside track to expanding that route. Or in my case when I had a mowing service, I had the Pesticide License plus Irrigation and could up sell new customer Fert & Squirt and irrigation service. This is called vertical Marketing because you up sell each customer more services as opposed to Hortonizal marketing where you sell one service to many customers.

Of course to purchase a company and cull all the bad accounts keeping the good one can be profitable also. If your account are spread out from East Jesus to Tinbuc2, you might want to consolidate the routes and sell off sections to other companies in those areas. Sometimes when people start making money in a business they lose sight of the goal and grow too big with out a Profit good margin.

Of Course some companies are just not run correctly and experienced management can turn a profit very quickly.

olcllc
11-11-2010, 08:42 PM
You use to see a lot of criticism from folks on here toward people that financed equipment... if the interest is 0 then there is no down side. Yes there is and always will be a doc fee of 125.00 or higher but that amount over 3 or four years is minimal.

dwc
11-11-2010, 11:28 PM
yo

I want to bring up the subject of Owner Equity to Profit Ratio. The reason is I believe many don't realize they are working for free or cheaper than they realize.

ROI stands for Return On Investment and every business must have investment of some sort. The larger the business normally the larger the Investment. If you barrow money you have to pay interest. If you bank your money you are paid an interest. So are you accounting for that Interest on your investment in your business when you figure your profit at years end. You might be very surprise at your profit margin once you pay your self interest on your investment of owners equity.

In My case the reverse of this is true to some extend, but I am still behind the 8 ball. My investment has long been written off and the value of that investment in equipment is decreasing in value. I am making no provisions for replacement equipment with an equipment account. Therefore part of what I take out of the business is in fact a percentage of Owner Equity, Not Profit.

One of the points I would like to make is. In some cases, in fact many cases your employees are making more money than you in the form of salary. Your higher income is actually interest income.
Most hose jockeys and chop and drops don't worry about about anything but making enough money from their little side business to buy a case of beer and maybe some football tickets for the weekend. They would be better off working an extra hour or 2 at their day job than out here in the real world screwing up the lawn care markets. It has always amazed me at the guys, especially the mowing guys, who will work for $5 an hour or less, but think because they charged someone $20 they made out big. If they truly knew their costs, we might all actually be able to charge a decent price for our services.
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Harley-D
11-12-2010, 09:40 AM
Honda Dream

I hear you but sometimes you make decisions based on gut feeling and not proper business protocol. In the case of buying Lawn account, These new accounts might be in gated communities and give you the inside track to expanding that route. Or in my case when I had a mowing service, I had the Pesticide License plus Irrigation and could up sell new customer Fert & Squirt and irrigation service. This is called vertical Marketing because you up sell each customer more services as opposed to Hortonizal marketing where you sell one service to many customers.

Of course to purchase a company and cull all the bad accounts keeping the good one can be profitable also. If your account are spread out from East Jesus to Tinbuc2, you might want to consolidate the routes and sell off sections to other companies in those areas. Sometimes when people start making money in a business they lose sight of the goal and grow too big with out a Profit good margin.

Probability numbers are not fun to calculate but can help you make decisions with better accuracy. Real world=doesn't happen. If buying a company and planning on selling off accounts that are not in a tight route, you better do the homework and make sure you can either sell off the accounts for what they are worth or not pay for them up front at all. Remember accounts receivable! Do the customers pay? Are they pita's? All these questions can help place a value on each customer and might change the value of the company. I would want to see records of the company i was buying to see how long it took certain customers to pay

fl-landscapes
11-12-2010, 10:06 AM
Probability numbers are not fun to calculate but can help you make decisions with better accuracy. Real world=doesn't happen. If buying a company and planning on selling off accounts that are not in a tight route, you better do the homework and make sure you can either sell off the accounts for what they are worth or not pay for them up front at all. Remember accounts receivable! Do the customers pay? Are they pita's? All these questions can help place a value on each customer and might change the value of the company. I would want to see records of the company i was buying to see how long it took certain customers to pay

due diligence is always a wise idea when purchasing a business

Ric
11-12-2010, 03:34 PM
Most hose jockeys and chop and drops don't worry about about anything but making enough money from their little side business to buy a case of beer and maybe some football tickets for the weekend. They would be better off working an extra hour or 2 at their day job than out here in the real world screwing up the lawn care markets. It has always amazed me at the guys, especially the mowing guys, who will work for $5 an hour or less, but think because they charged someone $20 they made out big. If they truly knew their costs, we might all actually be able to charge a decent price for our services.
Posted via Mobile Device


dwc

You make a great point very close to my heart with the Chop & Drop, Blow & Go attitude for Beer Money. This is why our industry has the Carl Spackler image. Too many who can't hold a real job or can't make it on their low pay fools work, become Yard Boys. For this reason any one who shows up on time and regular can get accounts. Doesn't matter that they don't have the first clue about how to do the work. Fact is some of those fool go on to build huge business with no real profit margin.


Harley D

Due Diligence, as Fl Landscape puts it, is the Key. Somewhere in the Middle of a business spread over 5 cities and 10 countries there just might be some value. Cull the rest and move on. Corporate raiding is not a new concept and there have been movies made about it.

But on the other side of the coin is the Million dollar sales and 60 K profit margin for the owner. I think we see more of the miscued business models in the Green industry than maybe other industries. While I read of start ups crying to get work, there comes a time where beating away work is more important. My point being with proper management that 60 K profit per year can easily be had as a one man band instead of 7 or 8 employees and 3,000 customers. Any one can take on more work than they can handle and lose money. But I work to make money and I don't like working too hard. I prefer to work smart instead.

Harley-D
11-12-2010, 03:44 PM
dwc

You make a great point very close to my heart with the Chop & Drop, Blow & Go attitude for Beer Money. This is why our industry has the Carl Spackler image. Too many who can't hold a real job or can't make it on their low pay fools work, become Yard Boys. For this reason any one who shows up on time and regular can get accounts. Doesn't matter that they don't have the first clue about how to do the work. Fact is some of those fool go on to build huge business with no real profit margin.

It does happen but not to often. Don't worry about others image, you can't do anything about that. This industry has a very simple appearance from the outside. And people mow their own yards everyday so how hard can it be?


Harley D

Due Diligence, as Fl Landscape puts it, is the Key. Somewhere in the Middle of a business spread over 5 cities and 10 countries there just might be some value. Cull the rest and move on. Corporate raiding is not a new concept and there have been movies made about it.

But on the other side of the coin is the Million dollar sales and 60 K profit margin for the owner. I think we see more of the miscued business models in the Green industry than maybe other industries. While I read of start ups crying to get work, there comes a time where beating away work is more important. My point being with proper management that 60 K profit per year can easily be had as a one man band instead of 7 or 8 employees and 3,000 customers. Any one can take on more work than they can handle and lose money. But I work to make money and I don't like working too hard. I prefer to work smart instead.
I see where you are coming from and agree. Profitability is considered many things to many people. Profit per capita of unit, employees or equipment, is not relative. But, everybody believes bigger is better! and more money. The uneducated cannot realize why this is not true.


:):):):):):):):):walking:

rcreech
11-13-2010, 08:55 AM
I also want to bring up the 'present value of money' idea. Money you have in the bank/investments is earning interest. Some guys like to go out and pay cash for a new truck/equipment. I prefer to finance it with 0 interest rates or extremely minimal. Look out for promotions like 0 interest for 36 months. You can let what you have in the investments keep on making money while getting a new piece of equipment at the same time.

I think one needs to borrow money to make money!

This will probably get some guys rowed up...but look at any business and they are working on borrowed money for the most part. It keeps your cash flow and allows you to expand faster then trying to grow on cash.

There are two kinds of borrowed money though.

1) Borrow money and buy something you WANT (This is the big NO NO)
2) Borrow money and buy something you NEED

I started my business over 5 years ago and there is NO WAY I could have be today if I was operating on CASH ONLY buying decisions.

It is very smart to pay off stuff early and use as much 0% financing or low % for equipment.

Yes you are going to pay some interest...but that is ok if you can come up with a plan to offset those costs.

I really laugh when I hear guys say they won't buy something because they don't have the CASH.

Guys, you are running a business and its ok to borrow money!

Now if you are borrowing it for that Hummer that you always wanted...then I would call you a ******! :)

Ric
11-13-2010, 09:22 AM
I think one needs to borrow money to make money!

This will probably get some guys rowed up...but look at any business and they are working on borrowed money for the most part. It keeps your cash flow and allows you to expand faster then trying to grow on cash.

There are two kinds of borrowed money though.

1) Borrow money and buy something you WANT (This is the big NO NO)
2) Borrow money and buy something you NEED

I started my business over 5 years ago and there is NO WAY I could have be today if I was operating on CASH ONLY buying decisions.

It is very smart to pay off stuff early and use as much 0% financing or low % for equipment.

Yes you are going to pay some interest...but that is ok if you can come up with a plan to offset those costs.

I really laugh when I hear guys say they won't buy something because they don't have the CASH.

Guys, you are running a business and its ok to borrow money!

Now if you are borrowing it for that Hummer that you always wanted...then I would call you a ******! :)


RC

I think a better saying is "IT TAKES MONEY TO MAKE MONEY" or "MONEY BEGETS MONEY". I am all for that cash flow nest egg that is just sitting there in a Money Market for those bad or good times when you need a shot of cash.

I think there is a FINE LINE when you start trying to run a business on borrowed money. I am not saying it is wrong for the RIGHT PERSON. But look at our credit problem today. Loose credit fueled a false economy while China became the Super Power on Wall Street.

rcreech
11-13-2010, 09:26 AM
RC

I think a better saying is "IT TAKES MONEY TO MAKE MONEY" or "MONEY BEGETS MONEY". I am all for that cash flow nest egg that is just sitting there in a Money Market for those bad or good times when you need a shot of cash.

I think there is a FINE LINE when you start trying to run a business on borrowed money. I am not saying it is wrong for the RIGHT PERSON. But look at our credit problem today. Loose credit fueled a false economy while China became the Super Power on Wall Street.

Totally agree!

U know what I was trying to say...but I like the way you put it much better!
:)

rcreech
11-13-2010, 09:32 AM
Oh yeah borrowing money also has another great benefit that I forgot to mention, it can legally help you reduce your income at tax time and shelter you away from the government at the end of the year!

:)

I hear they are trying to change that though! :(

Ric
11-13-2010, 10:04 AM
Oh yeah borrowing money also has another great benefit that I forgot to mention, it can legally help you reduce your income at tax time and shelter you away from the government at the end of the year!

:)

I hear they are trying to change that though! :(


RC

Loans are a valuable tool in two ways. Tax Shelter and Cash Flow. Ever notice a long term upscale customer who has survey stakes in their yard every few years??? That is survey for the refinance of their Tax Shelter that they also live in. Many will borrow on their home and invest in tax deferred plans that might be paying a higher interest than the Government backed home loan.

As for Loan or the Money thing. I think we were on the same track. I realize you come from an agriculture background and still help out on the family farm. Unfortunately Farming has become Real Big Business and need a lot of Cash flow. I am guessing at least 90% of American family Farms are run on Borrowed money maybe more. Most of these Family Farms are worth well over a million dollars yet they can't eat a spoon full of dirt and must borrow.

rcreech
11-13-2010, 12:13 PM
As for Loan or the Money thing. I think we were on the same track. I realize you come from an agriculture background and still help out on the family farm. Unfortunately Farming has become Real Big Business and need a lot of Cash flow. I am guessing at least 90% of American family Farms are run on Borrowed money maybe more. Most of these Family Farms are worth well over a million dollars yet they can't eat a spoon full of dirt and must borrow.

Few things Ric....

I actually don't "help out" but am 50% owner and invested in Creech Farms. :)

But yes you are correct.

For example I am the 4th generation to live on the family farm and we are very established.

But I still borrow almost 100% or my input money.

Why?

We are still buying land and updating equipment and also need to have money to run our business/life.

If we have a great year we will pay down some debt ahead of schedule and look for more ground or improve what we have with tile or update equipment.

The Government forces us to spend money if you will!

On the farm the saying goes "Live poor...and die rich".

Doesn't make a lot of sense but we keep doing it generation after generation!:)

Long story short...borrowing large amounts of money is KEY to my farm and lawn business!
Farming actually is pretty awesome right now though!

We can have a total crop failure and make good money with subsidies, crop insurance and current GRAIN PRICES! :clapping:

MacLawnCo
11-14-2010, 01:09 PM
im late to the party but still can have a good time, right?

Ric, you are talking of ROIC (return on invested capital). Its a very real figure people need to look at each year (or more frequently). If your money can PASSIVELY make even close to that figure elsewhere, working this business is a loosing game from the get go.

Rodney, you are talking about sustainable growth rate. Its a figure that is based in part on the profit margin and assumes unchanged capital structure. Im certain google can help you with the ratio if you really want it.

Saying borrowing money will give you a tax advantage is just hogwash. Its just like guys who buy equipment at the end of the year for a tax break. You spend 10k in interest just to save $3500 in taxes (assuming 35% rate)? Sounds to me like you're out 6500.

Capital structure is a great game to play. Each person has to weight the options and most importantly make a choice they can sleep comfortably with.

rcreech
11-14-2010, 02:48 PM
Rodney, you are talking about sustainable growth rate. Its a figure that is based in part on the profit margin and assumes unchanged capital structure. Im certain google can help you with the ratio if you really want it.

Saying borrowing money will give you a tax advantage is just hogwash. Its just like guys who buy equipment at the end of the year for a tax break. You spend 10k in interest just to save $3500 in taxes (assuming 35% rate)? Sounds to me like you're out 6500.

Capital structure is a great game to play. Each person has to weight the options and most importantly make a choice they can sleep comfortably with.

Mac,

I don't want this so sound bad...but those numbers don't interest me! I didn't pay attention in economic and business classes as they don't interest me. I do know how to make money!

My loan officer and my accountant are studs and I depend on them greatly to help me grow and they do. They advise me and actually they are actually blown away by some moves I make. I am not afraid at all to take a calculated risk and it has proven to work most times.

As far as borrowing money for taxes...if you want to upgrade or buy something you need it makes perfect sense. Just as I stated previously...you should not buy anything if you don't need it. That is foolish buying but can still reduce income which is a great thing IMO!

But spending DOES and CAN help one manipulate income and it helps even more with accelerated depreciation.

One should NEVER borrow money just for the fun of it!


HERE IS AN EXAMPLE OF WHAT I DO

Last year I had a brand new kitchen put in. I paid cash for the kitchen and borrowed money for all my lawn inputs. You can write off your interest for business but not for a kitchen!

I can promise you that my team (loan officer and accountant) knows what they are doing...so if you call what I do "hogwash" if you want!
:)

Ric
11-14-2010, 03:07 PM
im late to the party but still can have a good time, right?

Ric, you are talking of ROIC (return on invested capital). Its a very real figure people need to look at each year (or more frequently). If your money can PASSIVELY make even close to that figure elsewhere, working this business is a loosing game from the get go.

Rodney, you are talking about sustainable growth rate. Its a figure that is based in part on the profit margin and assumes unchanged capital structure. Im certain google can help you with the ratio if you really want it.

Saying borrowing money will give you a tax advantage is just hogwash. Its just like guys who buy equipment at the end of the year for a tax break. You spend 10k in interest just to save $3500 in taxes (assuming 35% rate)? Sounds to me like you're out 6500.

Capital structure is a great game to play. Each person has to weight the options and most importantly make a choice they can sleep comfortably with.


Thanks for the correction Mac.

My degree is in Horticulture not business, but I think I know what number to pay attention to even if I don't know the formal terms. But yes you summed up what I was trying to express. Some People would do better flipping burgers for the man while letting their capital investment collect interest and That was my total point.

Along those same lines, some people are actually working for free or losing money by the hour because their capital investment interest is keeping them afloat. That was my main point in starting this thread.

MacLawnCo
11-14-2010, 04:30 PM
Mac,

I don't want this so sound bad...but those numbers don't interest me! I didn't pay attention in economic and business classes as they don't interest me. I do know how to make money!

My loan officer and my accountant are studs and I depend on them greatly to help me grow and they do. They advise me and actually they are actually blown away by some moves I make. I am not afraid at all to take a calculated risk and it has proven to work most times.

As far as borrowing money for taxes...if you want to upgrade or buy something you need it makes perfect sense. Just as I stated previously...you should not buy anything if you don't need it. That is foolish buying but can still reduce income which is a great thing IMO!

But spending DOES and CAN help one manipulate income and it helps even more with accelerated depreciation.

One should NEVER borrow money just for the fun of it!


HERE IS AN EXAMPLE OF WHAT I DO

Last year I had a brand new kitchen put in. I paid cash for the kitchen and borrowed money for all my lawn inputs. You can write off your interest for business but not for a kitchen!

I can promise you that my team (loan officer and accountant) knows what they are doing...so if you call what I do "hogwash" if you want!
:)
Rod,

Im glad you have that team. Its critical.

One of my team members is a personal friend, a retired AF cornel. I have to mathematically prove to him each and every substantial business decision based strictly on numbers. It has to equate to a financial gain. Why else do it? It sounds like you are in the same boat - without the numbers to back up your gut. I used to be the same way. It was a rare occasion when I made a bad business move based strictly on my gut. Here in lies the problem with gut instincts: you cant train anyone else to make similar decisions. But, if you have a mathematical decision scenario, that certainly is replicable.

I dont want to be working in 5 years. But I do want my business to keep hemorrhaging money into my personal accounts. I am actively working to make everything I do replicable so that each person I begin replacing myself with will be able to walk in my shoes with very similar results. If not, there are objective criteria to compare them against when terminating them.

Guts can only bring you so far. Short term, I would much rather keep running by my guy. Its easier. But easiest isnt always best.

rcreech
11-14-2010, 10:11 PM
Rod,

Im glad you have that team. Its critical.

One of my team members is a personal friend, a retired AF cornel. I have to mathematically prove to him each and every substantial business decision based strictly on numbers. It has to equate to a financial gain. Why else do it? It sounds like you are in the same boat - without the numbers to back up your gut. I used to be the same way. It was a rare occasion when I made a bad business move based strictly on my gut. Here in lies the problem with gut instincts: you cant train anyone else to make similar decisions. But, if you have a mathematical decision scenario, that certainly is replicable.

I dont want to be working in 5 years. But I do want my business to keep hemorrhaging money into my personal accounts. I am actively working to make everything I do replicable so that each person I begin replacing myself with will be able to walk in my shoes with very similar results. If not, there are objective criteria to compare them against when terminating them.

Guts can only bring you so far. Short term, I would much rather keep running by my guy. Its easier. But easiest isnt always best.

I agree that one must make decisions based on "calculations"...but there also has to be some gut decisions based on common sense and calculated risk.

Some things you just can't calculate!

I have bought several pieces of equipment such as my first seeder and had very little business. If I would have "pushed a pencil" I wouldn't have bought it because I didn't have much work lined up. Now seeding is by far the best move I have ever made. We are actually adding another unit and due to talking with my loan officer he helped me make a big decision.

For example...and this is a pretty good one, when I was looking to add another Slice Seeder to my fleet I was looking at new vs used.

I found a very nice used 2008 seeder for $4000 but by the time I got it shipped and figured putting on new knives with labor I would have over $5400 plus I would have to pay cash.

I can get a brand new 2010 seeder for $7300 and it is ready to go and can get 0% financing for 36 months.

Talked to my loan officer (which is also a friend of mine) and after he pushed the numbers figuring in the price difference, 0% financing, warranty and difference in the depreciation schedule the new one was within $1000.

He said "why would you buy a 3 year old machine that may have issues when you can buy a brand new machine for less then $1000".

That isn't what I thought he would say but thanked him and knew what I needed to do.

My simple mind would have thought the used unit would have been the way to go and try to save some $$$$$$!
:)

T.E.
11-14-2010, 10:20 PM
im late to the party but still can have a good time, right?

Saying borrowing money will give you a tax advantage is just hogwash. Its just like guys who buy equipment at the end of the year for a tax break. You spend 10k in interest just to save $3500 in taxes (assuming 35% rate)? Sounds to me like you're out 6500.

A good thread but this is the most intelligent post of the thread so far. Way to many fools fall for the tax advantage hoax. You "could" spend thousands of dollars to keep from sending the IRS a few hundred? Doesn't make sense. IMHO

rcreech
11-14-2010, 10:37 PM
A good thread but this is the most intelligent post of the thread so far. Way to many fools fall for the tax advantage hoax. You "could" spend thousands of dollars to keep from sending the IRS a few hundred? Doesn't make sense. IMHO

It is far from a hoax if you know what you are doing!

Again, if you need it...buy it! If you don't need it...don't buy it!

Talk to your accountant (if you have one)!

T.E.
11-14-2010, 11:07 PM
It is far from a hoax if you know what you are doing!

If you don't need it...don't buy it!

Talk to your accountant (if you have one)!


Yes I do have an accountant. What I'm talking about I've met people that simply buy something for the sole purpose of the of the tax deduction....spending and sending thousands to the banker just to avoid a few hundred to the IRS! If this is the ONLY reason for buying....I have to disagree. If one needs the equipment, it's kind of foolish not to buy it. Good discussion BTW. This forum needs more of these type discussions.

T.E.

MacLawnCo
11-15-2010, 08:04 AM
FYI, if you do need a tax deduction but dont need more equipment (or just want a larger deduction), you can contribute around $11k, tax deferred, per year into a simple IRA (simplified 401k for small businesses) and still contribute to a tax deferred regular IRA or Roth IRA too. Thats a win win in my book; a tax deduction and a semi liquid asset that actually appreciates. :)

fl-landscapes
11-15-2010, 08:26 AM
It is far from a hoax if you know what you are doing!

Again, if you need it...buy it! If you don't need it...don't buy it!

Talk to your accountant (if you have one)!

thats the key! if you see a need for a piece of equipment in the near future why not move the schedule up to take advantage of tax deductions a little sooner. I do it all the time. As long as your buying things you need and not spending just to spend.

fl-landscapes
11-15-2010, 08:28 AM
FYI, if you do need a tax deduction but dont need more equipment (or just want a larger deduction), you can contribute around $11k, tax deferred, per year into a simple IRA (simplified 401k for small businesses) and still contribute to a tax deferred regular IRA or Roth IRA too. Thats a win win in my book; a tax deduction and a semi liquid asset that actually appreciates. :)

think its $5000 max

http://www.irs.gov/retirement/participant/article/0,,id=188232,00.html

also that money is tied up until retirement age and you pay hefty penalties if you take it out early.

MacLawnCo
11-15-2010, 08:51 AM
think its $5000 max

http://www.irs.gov/retirement/participant/article/0,,id=188232,00.html

also that money is tied up until retirement age and you pay hefty penalties if you take it out early.

dont bother me unless you have your facts. A response that is based on thought or emotion is typically empty.

Ric
11-15-2010, 09:04 AM
dont bother me unless you have your facts. A response that is based on thought or emotion is typically empty.

I beg your pardon Mac

The man gave link to the facts and if you are to lazy to clink on the link here is Copy & Paste.

If you are under 50 years of age at the end of 2010: The maximum contribution that you can make to a traditional or Roth IRA is the smaller of $5,000 or the amount of your taxable compensation for 2010. This limit can be split between a traditional and a Roth IRA but the combined limit is $5,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending upon your modified adjusted gross income (modified AGI).

Ric
11-15-2010, 09:36 AM
dont bother me unless you have your facts. A response that is based on thought or emotion is typically empty.

Oops

OK My Bad, That was your attempt at Humor and it was too early in the morning and I was just fresh out of bed.

fl-landscapes
11-15-2010, 11:52 AM
I beg your pardon Mac

The man gave link to the facts and if you are to lazy to clink on the link here is Copy & Paste.

Mac as ric stated I posted the "facts" maybe you might want to have your "mathematical genius partner" go over the link to clarify it for you.

MacLawnCo
11-15-2010, 06:00 PM
Last post for a while. Best way to look silly is to argue with an .....

Simple IRA = http://www.irs.gov/retirement/article/0,,id=108941,00.html , contribution limits = http://www.irs.gov/retirement/participant/article/0,,id=211345,00.html

Traditional = Regular IRA.

Dont question me on money. I know how to make and keep a ton of it.

fl-landscapes
11-15-2010, 07:04 PM
Last post for a while. Best way to look silly is to argue with an .....

Simple IRA = http://www.irs.gov/retirement/article/0,,id=108941,00.html , contribution limits = http://www.irs.gov/retirement/participant/article/0,,id=211345,00.html

Traditional = Regular IRA.

Dont question me on money. I know how to make and keep a ton of it.

Thats good because you are obnoxious

fl-landscapes
11-15-2010, 08:42 PM
Thats good because you are obnoxious

Obnoxious but apparently correct, Im man enough to admit when I am wrong.

Harley-D
11-18-2010, 09:49 AM
FYI, if you do need a tax deduction but dont need more equipment (or just want a larger deduction), you can contribute around $11k, tax deferred, per year into a simple IRA (simplified 401k for small businesses) and still contribute to a tax deferred regular IRA or Roth IRA too. Thats a win win in my book; a tax deduction and a semi liquid asset that actually appreciates. :)

I agree with you but what about a company that has very little in costs but makes a large amount of income? Putting your money in an IRA isn't a bad idea but might not be the best option for tax deferrment. The key word there is semi liquid. If your taxable income is over $150k, where else can you deduct it and continue to grow the company? I've heard that this is the last year for accelerated depreciation. Not a bad move to buy that $35k skidsteer and write off the whole thing. $11k is ok but when you are talking about 150 to 250k in taxable income, you need to find some other ways of having it help you instead of giving half of it to uncle sam. imo

Ric
11-18-2010, 05:36 PM
Yo

Speaking from experience IRA can be an excellent tax deferment, BUT They do leave a paper trail for her lawyer. Therefore I personally would have been better off having my annual company meeting on the Rivera.

fl-landscapes
11-18-2010, 06:41 PM
Yo

Speaking from experience IRA can be an excellent tax deferment, BUT They do leave a paper trail for her lawyer. Therefore I personally would have been better off having my annual company meeting on the Rivera.

IRA a good idea for a retirement move but to hold up company money for long periods of time may not always be good. The penalties if cashed out early are steep

americanlawn
11-18-2010, 07:28 PM
Followed this thread for a while. Is this about how to write off a "weedeater" or is it about how to "retire"? Can't really figure it out. HUGE DIFFERENCE. One can try to write off cheap equipment (mowers, sprayers, trucks, etc) , but I was expecting more.

An IRA is good, but what if one is approaching retirement age?

Also wondering if one has a business valued at $900,000 or a smaller guy with a $50,000 business. Return on investment should include what the market will pay for a business. "Dollar per dollar" for a very successful business, or having a garage sale for used equipment and an inefficient business at 25 cents on the dollar. HUGE difference.

Then figure the value of commercial real estate. (not mentioned in this thread)

Kinda weird, huh?

Ric
11-18-2010, 07:49 PM
IRA a good idea for a retirement move but to hold up company money for long periods of time may not always be good. The penalties if cashed out early are steep

Fl Landscape

IRA would not be purchased with Company money. They are personal investment for retirement and should invested in from an early age. From a personal standpoint the IRA is a better long term investment if your company isn't a TG/CL wannabe and has a big enough profit margin to afford a IRA. However as the major stockholder or owner of a corporation you can use the IRA as colateral on a loan for the company.

Barefoot James
11-18-2010, 10:13 PM
Great input fellas - keep it going agree with many ideas - I believe in needing loans to grow but when you get to a certain point you need to be thinking retirement and exit stratigy. Good points on all fronts.

MacLawnCo
11-19-2010, 06:35 PM
Followed this thread for a while. Is this about how to write off a "weedeater" or is it about how to "retire"? Can't really figure it out. HUGE DIFFERENCE. One can try to write off cheap equipment (mowers, sprayers, trucks, etc) , but I was expecting more.

An IRA is good, but what if one is approaching retirement age?

Also wondering if one has a business valued at $900,000 or a smaller guy with a $50,000 business. Return on investment should include what the market will pay for a business. "Dollar per dollar" for a very successful business, or having a garage sale for used equipment and an inefficient business at 25 cents on the dollar. HUGE difference.

Then figure the value of commercial real estate. (not mentioned in this thread)

Kinda weird, huh?
Here goes some more fun stuff.

I have two separate companies for the same brand essentially. Legally, one LLC does the apps, another LLC does the land mgt. The fun begins when there are simple IRAs for each - and a spouse works for the co's too...

The lawyer keeps suggesting I set up a leasing co to own the assets. Thats an even more fun game.

I dont think you will ever find anyone (on the up and up) to loan against the projected value of an unsold business. That just sits on your personal balance sheet and makes you smile.

I know of a businessman in another industry that has two legal entities for the same business too. One entity pays his guys while they are driving in the truck. The other pays them while they do production. His guys work a ton of hours but have never seen a dime of OT.

MacLawnCo
11-19-2010, 06:39 PM
Fl Landscape

use the IRA as colateral on a loan for the company.

that is what gives the IRA its semi liquidity i mentioned earlier... Im glad you have understanding Ric.