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New Equipment Purchase Questions

Discussion in 'Heavy Equipment & Pavement' started by rutwad, Sep 14, 2006.

  1. rutwad

    rutwad LawnSite Member
    from Alabama
    Posts: 179

    I am about to purchase a new ASV RC-100 and have a few options.

    1> Buy the machine with 100% financed
    2> Buy the machine with ???? down, finance the rest
    3> Lease to buy through King Commercial I've heard that leasing allows you to count off entire payment on taxes. APR is higher, but it may come out saving me money.

    What should I do?
  2. cddva

    cddva LawnSite Member
    Posts: 189

    I would suggest you consult with a tax accountant regarding the tax pros and cons for the options you listed. Of course only you can figure what you can afford on monthly payments for the machine based on those finance options. Are you still considering a cutter head purchase? It may be financially prudent to include that purchase with the machine as a package deal (get a break on the price and include with finance package) if its within your affordability range. I've seen an ASV dealer here with a new cutter head on a new RC-100 sitting in the "showroom". There are lots of financial calculators available on the internet for free (Google search) to do some quick calculations yourself comparing different APR's versus term of loan etc. Hope that helps a little.
  3. AWJ Services

    AWJ Services LawnSite Platinum Member
    from Ga
    Posts: 4,276

    You need too consult your tax accountant on this but from what I have found this is not exactly true.
    The lease companies use this you bait you into higher intrest rates.

    Remember you will probally be lucky too break even the first year much less show a huge profit.
    Deductions will be easy too come by.
  4. RockSet N' Grade

    RockSet N' Grade LawnSite Silver Member
    Posts: 2,454

    Both CD and AWJ are steering you in a very responsible direction. Are you a sole proprietor, LLC or what?

    I see alot of guys buying new iron out there 'cause it is real easy to do and the economy is pretty good right now......just wait for a hick-up and this market turning just a little soft.....my point is, a new piece of iron is suductive and easy to get, be careful and prudent in your game plan and have enough capital to back you up and carry you through....limit your exposure, get good tax advise, talk with an "old timer" who has made it in the good times and bad.....
  5. rutwad

    rutwad LawnSite Member
    from Alabama
    Posts: 179

    Thanks. It all sounds like good advice!
  6. janb

    janb LawnSite Senior Member
    Posts: 254

    Yeah, this is true, don't forget your WHOLE tax / cash flow picture

    Especially if you are taxed as a corp! (possible in LLC) or even as a 'pass-thru' (most probable in LLC, unless you opt for Corp taxation when you establish) Partnership and Sole are both 'pass-through' (I.e., ALL Household earnings are part of equation)

    Run various tax scenerios, especially with the major part of 2006 season behind you.

    There are definate benefits to using a Section 179 deduction, if you need to offset other earnings. ( Sect 179= 1-100% accellerated depreciation - only available in year of purchase & limited to ~$120k, and your 'earned income', not applicable to 'investment income') I had to do a 179 last year due to getting a 'severance' package from former employer but... you reduce or exhaust your future depreciation; this could be important. AND as always... you need to 're-capture' this deduction if you sell capital equip before the depreciation period ends (5 yrs in this case).

    Depending on your situation CASH FLOW or available EQUITY should drive the choice, taxes are secondary, but important. If you have the cash flow, and have a better place to put your capital, I recommend the 'payment' option IF you get a favorable rate (<6%) and can handle a long dry spell of no income (machine down, get hurt, no business, weather, other priorities...) BUT you need to have a 'plan B', as payments are like handcuffs. (working spouse who makes big bucks and encourages your 'play":) or a rich uncle, or a pot-o-gold, Dont count on a lotto win :nono: )

    In either case, be sure you have at least 12 months capital set aside for a new business (rent, insurance, repairs, supplies, payments, wages, taxes, permits, advertising, legal, tax advice, engineering, haul vehicle expense) include an 'emergency fund',) to rent other equip,(replacement / additional) hire sub-contractors, pay fines, unexpected repairs (towing, roll-overs...) With the left-over money:dizzy: , set aside $.99/day for a "wendy's' Jr. Bacon Cheesburger", hopefully that will keep you going:drinkup:

    I tend to avoid the 3rd party equipment lease option, as there is usually someone making money on this deal, and YOU'RE paying. There can potentially be advantages to a 'company' funded lease program if there is need for Maint / upgrade. but... those 3rd party guys don't give a rip about any of your problems, they just want your cash. I am also not inclined to pay a large down to a financier, as... when the unfortunate situation arises that they need to repo, they are much less likely to negotiate with a client who has provided them with extra equity (large down payment). Lenders are in the business to make money - be careful !!, Its hard enough to make your own $$, much less extra $$ for them.
  7. AWJ Services

    AWJ Services LawnSite Platinum Member
    from Ga
    Posts: 4,276

    This is probally the best advice for the right approach with your buisness plan that I have seen in awhile.
  8. rutwad

    rutwad LawnSite Member
    from Alabama
    Posts: 179

    Sounds like great advice. Thanks!

    I will be operating as a sole prop. I have many expenses associated with start-up. I financed 100% of a truck. I am paying 100% for a trailer. The interest rate for the ASV should be 6.8%-7.0%. I have another job that I plan to keep. I will operate my business in my off time from my regular job.
  9. AWJ Services

    AWJ Services LawnSite Platinum Member
    from Ga
    Posts: 4,276

    An LLC is very easy too setup and does give you a little more protection and a few extra tax benefits.

    The good thing about being self employed is that many things that you may be purchasing personally can now be written off through the buisness.

    I refer too it as pre tax purchases.
    The stuff needs too be legit but it helps greatly.

    Another thing I would do is get a log book or ledger and everytime you do anything for the buisness write it down including things like Time,Mileage,phone calls,destination etc etc.

    You will be suprised how much time you spend dealing with your buisness that is spent basically doing nothing that directly is generating money(machine time).

    You may bid a job at 4 hours machine time ,but will find that it will take 6 hours billable time too make it work out too cover time spent.
  10. rutwad

    rutwad LawnSite Member
    from Alabama
    Posts: 179

    My first thought was to start business as a LLC. But then one night I was watching "Suze Orman" and she was talking to a caller about starting his business. He was going to start up as a LLC. She recommended he just operate as a sole proprietor. I don't remember all the details, but for the type business he was setting up he stood no great risk of being sued.

    Then again, being a LLC vs. a sole prop. may look more "professional"?

    I greatly appreciate all the info and advice available from this site


    I'm :) to be :usflag: .

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