Pay back on Equipment

Discussion in 'Landscape Architecture and Design' started by paul, Mar 21, 2002.

  1. paul

    paul Lawnsite Addict
    Posts: 1,625

    We use a lot of equipment, but I was wondering how smaller companys figure what their return on equipment is?

    How many hours before you trade in?
    How many hours before you figure it's earned its keep?
    The % of days worked and hours per day?

    The last is frequency of repair?
     
  2. PAPS

    PAPS LawnSite Senior Member
    Posts: 404

    When it comes to equipment with us, we use it til we can't use it anymore... I have a guy who works for me thats a top-notch mechanic, he repairs all our lawn maint. equip. all our trucks, he can fix our Bobcat, our Komatsu Excav., and our Brush bandit chipper, anything, so for me it pays to keep "older" equip., but on the other hand... we do take care of our equip. really well....
     
  3. Planter

    Planter LawnSite Member
    from Utah
    Posts: 214

    I just bought a new tractor. Traded in the old one when it was shot. The new one gives me a reliable piece of equipment, saves down time on jobs.

    A friend just bought a new Case skid steer. Took his in for service and they gave him an excellent value on the trade-in, I think he got zero interest for 2 years. Made it hard to not trade up (more horsepower, less down time, etc.) He wasn't in the market but the deal was too good to turn down.

    He figured his cost on the old one, $6.75 per hour to operate it.

    I run my old equipment until it's nearly dead, unless a deal like this come along.

    Having accurate equipment history and cost records will help in determining when it's time to trade.
    Kevin
     
  4. LawnLad

    LawnLad LawnSite Senior Member
    Posts: 738

    The cost for the equipment to operate it, or to charge for it in your bids, is based on total cost divided by life expectancy (in years) to give you cost per year. Then determine how many days or hours you'll use the equipment. A truck will be used 200 plus days a year while an aerator may only be used 2 weeks out of the year. Their cost per hour to operate though may be very similar.

    To replace equipment, determine the cost of your down time if that's an issue. As well, at the point a truck or piece of equipment is costing more in maintenance (labor and parts) then it would cost you to replace it, then do so. You might like to have the depreciation. Depends on your tax startegy to and how you can off your old equipment. Equipment that has no book value might just disappear or your tractor that could have sold for $8,000 before it fell off a cliff, is now only worth $1,000 salvage. Too bad you lost that $7,000. Turn the equipment over if it makes sense.
     
  5. paul

    paul Lawnsite Addict
    Posts: 1,625

    I think I didn't make Myself clear, My company uses a lot of equipment but I wonder how smaller companys figure return on investment!
     
  6. SCL

    SCL LawnSite Senior Member
    Posts: 543

    Paul
    That's one hell of a question:confused: I have to think some on this and I'll get back
     
  7. paul

    paul Lawnsite Addict
    Posts: 1,625

    I try not to ask the easy ones:)
     
  8. Loosestrife

    Loosestrife LawnSite Member
    from PA
    Posts: 80

    INteresting topic.

    We used to be of the menatlity "run it till the wheels fall off, then junk it".

    As time went on, we realized that running older equipment was costing us close to what it costs to run newer equipment.

    When making a purchase decision, we look at the cost of the piece of equipment, doesn't matter if it is a truck, or a hand held leaf blower. We will then look at the value of similar pieces of equipment that are a few years old. We will try to estimate what the value of our new equipment purchase will be in 3-4-5-6 years. We will then formulate a "plan" for that piece of equipment.

    I'm going to use my wife's car for an example, only because I KNOW the numbers off the top of my head. IT was purchased two years ago for $17,000 brand new. The current value of the car is $11,000. The value of a similar car, with similar use that is 4 years old is $10,000. This tells us that if she were to trade/sell the car now, as opposed to in two years, she will take a loss. If she trades now, her costs to own the car will have been $6,000, or $3000 per year. If she waits two years, her costs to own the car will be $7000, or $1750 per year. Obviuosly, it makes sense to hold on to the car a little longer, if the ownership costs stay in line with our predicition.

    It is the same way we value our equipment. We also find than an added benefit of trading in our equipment fairly often, we are able to utilize the newer and more efficent equipment. Our repair costs are lower, and much more predictable when compared to older equipment.

    We will take the dollar figure we get from subtracting the trade in value from the purchase price, add in maintenance, insurance, and other ownership costs, and divide that over the life of the equipment. This allows us to accuratly bill for that piece of equipment.

    Over the years, I have found that I would much rather be working at my own trade than playing mechanic. We find that the aggrivation that comes with using older equipment always comes at the worst possible time, and often has a higher cost than the parts and mechanic time.

    Sorry, I got off on a tangent about old vs. new equipment. To the questions in the first post.

    ---How many hours before you trade in? Most everything in our "fleet" is 4 years old or less. Some things that only see occassional use are older, but we find that for most items, a 4 year trade in is good for us.

    ---How many hours before you figure it's earned its keep?
    Because we cost each item out, it earns its keep constantly. We know that the machine will justify itself over the life of the machine.

    ---The % of days worked and hours per day?
    This largely depends on the equipment. i.e. aerators and snow removal equipment sit much of the time, while othes are used almost daily. We account for this when costing each piece of equipment.

    ---The last is frequency of repair?
    As I said, with operating a relativly modern fleet, our repairs are minimal.

    We do, however, keep tabs on our investments throughout the course fo their life. If a piece is costing more in repairs, we may opt to upgrade it sooner than planned. Or, if the value of a piece has drastically changed from our origional estimate, we may change our plan for that piece. On the other hand, if the value of a piece stabilizes, and the piece is not costing an abnormal amount in ownership costs, we may decide to hold on to it a little longer...
     
  9. kris

    kris LawnSite Bronze Member
    from nowhere
    Posts: 1,579

    Paul ... As far as how long a piece of equipment will last ...its basically a educated guess for me... I can figure the cost per hour to run a certain piece of equipment..
    We choose not to buy new trucks, but a few years old and keep them a long time... other guys will swear by buying new and trading every 3-4 years....whatever works for you.
    IMO ..one of the biggest mistakes is putting your eqipment in your overhead and then bid it by percentage.
    You need to estimate and cost it like labor.
     
  10. cutntrim

    cutntrim LawnSite Senior Member
    Posts: 474

    We've got three trucks (two '89s and an '85). Our mowers were bought in '99. This coming November we'll own outright all of our equipment.

    I drool uncontrollably when I see a new Chevy 2500HD 4x4 drive by but dollar-wise I just can't justify it now. Everyone's situation is different, but for me it makes sense to run older stuff and keep it serviced as best as possible. The monthly loan payments that pay for three trucks just about equal what I'd be paying to buy just one new truck.

    I figure a new truck or mower might look nice but it won't cut more grass, plow more snow, trailer more equipment, or carry more supplies...so it isn't worth it.

    Yeah, yeah a new Chev w/duramax will outperform my older ones, but what I've got now is work-tough enough for us. I figure that as long as you've got backup equipment (we run two lawn maintenance crews but have three trucks) then you'll be o.k.

    Sure would love a new Chevy though...
     

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