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Debt Free business

Discussion in 'Starting a Lawn Care Business' started by Hoss4x4, Sep 18, 2011.

  1. LindblomRJ

    LindblomRJ LawnSite Silver Member
    Posts: 2,570

    A revolving line is handy. If you can finance at slow rate for something large, a truck, large equipment, or trucks.
    Posted via Mobile Device
  2. precisionlawnandlandscape

    precisionlawnandlandscape LawnSite Member
    Posts: 19

    Guess i will chime in with my $.02 worth. 1st off, anyone who says "all debt is dumb", is well, for lack of better words, "DUMB". Yes, if your growing a "lawn care" business, you shouldn't have a problem growing somewhat debt free. however, and i don't mean to piss anyone off here, if you try to grow a "real" business, and by this i mean, manufacturing company, retail store, excavating company, all of which require MAJOR investments of cash, to both start and to maintain. This simply is not going to happen strictly on cash only. If you try to do any of the above on cash alone, you will never grow to any size in your lifetime. Now there are probably a FEW exceptions to this, but very few.

    Next thing, i will use an example that i witnessed first hand. My grandparents are very wealthy (in the millions). They bought a motorhome about 5 years ago. Price tag, a cool $495,000. They paid $395,000 in cash and financed the other $100,000. I immediately asked her, why would you do that, you have the other $100,000 in the bank. She said that's how i got all my money, by being smart and knowing when to pay cash and when to finance. I said, please explain then!!! She said we financed the other $100,000 at 0% interest for 12 months. That is a payment of $8,333.34, we then pay that with our credit card each month (which has a $50,000 limit). When we get the bill we pay it off right away, so no interest there. I said why, what have you gained by doing this. She said our card pays 5% cash back, so we receive a little over $416 each month from the credit card company. She said "easiest $416 a month i ever made" Now who looks like the dummy?
  3. Patriot Services

    Patriot Services LawnSite Fanatic
    Posts: 12,901

    A full blown gem of advice. BOA is currently one of a handful of companies offering great cc incentives. Paying off full at end of month eliminates the interest. The incentives are cash back on fuel and other purchases. Just don't forget to make that payment on time. This helps with your cash on hand throughout the month. It can be a real juggling game at times.
    Posted via Mobile Device
  4. 32vld

    32vld LawnSite Gold Member
    Posts: 3,984

    The dummy is the person that reads this and forgets grandma has the wealth to pay off this loan in cash tomorrow. So grandma can work the system.

    Most business owners are borrowing money and counting there never will be a drop off in profits bad enough that they will be out of business if their income drops off too much which will cause them to default on their loans.

    I have seen businesses grow and reach millions of dollars in sales and buy million dollar machines without using credit.

    Rate of growth and the costs to get there vs rate of growth in net profit.

    People in personal life as well in business forget the difference between need and want.

    Doubling sales is a want, not a need.

    Trading in a truck every 4 years is a want, not a need.

    That is the problem with credit use creating problems. People use credit when it is not a need.

    Truck died, 10 years old, 275,000 miles, everything is worn out and the expense is so high the truck is not worth fixing.

    With no truck, no cash to buy a truck, the LCO has to get a loan. This is a need not a want.
  5. precisionlawnandlandscape

    precisionlawnandlandscape LawnSite Member
    Posts: 19

  6. Patriot Services

    Patriot Services LawnSite Fanatic
    Posts: 12,901

    It can be scaled down. Nobody said it was only for expensive purchases. Cash back perks apply to every purchase. It just gets a lot more noticeable the larger the purchase. Additionally it stresses the need to maintain good credit.
    Posted via Mobile Device
  7. newguy123

    newguy123 LawnSite Bronze Member
    Posts: 1,094

    Although your Grandma's story is pretty awesome...most businesses do not allow someone to pay debt with another form of debt (i.e., pay motor home debt with credit card.)

    Their situation sounds quite unique due to their income level/wealth. I might be assuming, but most people couldn't do that due to the above statement I made.
  8. precisionlawnandlandscape

    precisionlawnandlandscape LawnSite Member
    Posts: 19

  9. PerfectEarth

    PerfectEarth LawnSite Bronze Member
    Posts: 1,734

    I've had to go back 7 pages to find the word "TAX" or "TAXES" in this thread. This is not as simple as "I want it or need it, so I buy it/finance a low rate!" VS. "NO! Cash is king!"

    When you run a growing, legit business on the books, you do NOT want to pay Uncle Sam if you can avoid it. So what we have done is purchase equipment, and most recently a new truck, on good credit. We pay the loan, manage cash, and banks love it. In turn, we can grow, purchase equipment that will help us be profitable, and have tools we NEED to work and grow.

    I've diverted ton of money by financing and acquiring a working asset and NOT paying more to the GOV. Would I rather be debt free? HELL YES, but then I would be stuck paying more taxes, struggling with equipment needs, and not growing the business. Debt will come to an end one day (or be much less stressful) but not now. That's part of business and going in a forward direction. That's what financing is there for. A necessary evil that you make work for you.
  10. newguy123

    newguy123 LawnSite Bronze Member
    Posts: 1,094


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