Managing Capital

Discussion in 'Hardscaping' started by Edgewater, Dec 10, 2007.

  1. Edgewater

    Edgewater LawnSite Senior Member
    Posts: 457

    I think that this is something that is a make or break issue for many small businesses. How do you work your money. When do you finance, when do you avoid financing.

    I think that everyone would like to pay up front for everything, but the reality is that some markets are so competitive that they will not allow you to generate enough retained earnings in a SHORT period to support moderate growth. In many areas, a company that is using financing efficiently can do well.

    I thought that it might be beneficial to see what some members do with respect to allocating funds to replace equipment and acquire additional equipment. What are those allocations based on?

    Any ideas are welcome
     
  2. leaflandscape

    leaflandscape LawnSite Member
    Posts: 241

    I'm not terribly fiscally responsible, so here's my system (and I haven't had an accountant give me a hard time yet). We started the business with a 1986 F150 and a wheelbarrow and as we went we upgraded trucks, equipment, etc.. We had a couple years where we spent too much on assets, and a couple years where we spent too little. Now we've got an accountant we like, who somewhat has a bead on where we're going with the business, and we can ask him questions before we do the 'history-repeating thing'. I honestly believe that a lot of business is just trial and error to start.
     
  3. Edgewater

    Edgewater LawnSite Senior Member
    Posts: 457

    My thoughts are that while it is OK to finance something once, when it is paid for, the dollars for its replacement should be available.

    Ex.

    A machine that has a $700 monthly payment for five years. When the five years are up and the unit is paid for, it should still be factored into job costing.

    What formula do you use to determine how much to put aside. Is it per machine, a global budget for the whole company.

    What do you then do with the money? term deposits, bank account etc.

    Not trying to get personal, but rather trying to get a feel for what other do.

    Adam
     
  4. AztlanLC

    AztlanLC LawnSite Bronze Member
    Posts: 1,046

    Well try to avoid the errors that many of us did.
    I use to look loans as a bad thing I was more of a debt free mind, but have come to realize that financing is another great tool if properly utilize, when I started I knew I need it a truck a trailer and small equipment, went out and bought all used it did serve the purpose but couple of seasons down the road had to start replacing all, so finally I got couple of loans and bough some new and almost new equipment, finally realized that many times owning old equipment cost as much or more than new, after you add all the downtime, repairs, more fuel usage, etc.

    There is times that brand new equipment is so overpriced that we buy it with very low hours or miles and save quite some money, also there is times where financing is much higher on used equipment that buying new is about the same.
    This is a little example Toyota was running a 0% apr financing for 5years, a nicely equip.(for commercial purposes) truck double cab, 07 could be yours for about $550.00 a month including taxes, almost the same than a used truck with a 7-8% apr.
     
  5. tthomass

    tthomass LawnSite Gold Member
    from N. VA
    Posts: 3,497

    I own and finance. My Bobcat T190 I bought out right with a check. My new Chevy and my International I both financed. I have refinanced the International once and may do it to both in a month or so. Banks want my business so I let them compete.......beat the rate and you've got the loan. The funny part is I will be refinancing with the bank that first lost my loan haha.

    I'm not a financial mind blower but I'm not stupid and blow my money either. I make and make and make and save and save and save. I came across a great deal on my Bobcat, had the money and made the move. I save so that when I see something I need I get it without reservations and get the 'something' working for me asap.

    I also keep enough in the bank to cover what is financed. Should something happen I can pay off every debt I have and still have money in the bank to operate........financial freedom I guess you could call it.

    If at the end of the year I need more write off I will make an additional payment for however much against the principal of my highest interest loan. I save in taxes and in interest.

    A lot of people just get $ happy. They get $10,000 in the account, think they're on top of the world and they blow it. They are also out of business shortly or never grow the business before they grow up themselves.
     

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