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Cash or Credit??

Discussion in 'Business Operations' started by perfection lawn care, Apr 30, 2002.

  1. LawnLad

    LawnLad LawnSite Senior Member
    Messages: 738

    I suppose it depends on how deep your pockets are and how averse you are to debt. Some will take on a little more, some less. I've always paid for smaller equipment in cash - less than $3 K. Case by case over $3 or $4 K on financing. And if I do, it's usually because in April I don't have the money I do in July. So I try to pay it off in 8 months. But that's a cash crunch on cash flow - so you have to be careful not to put yourself back by "stealing" money from your working captial (float in your bank account). I've also personally loaned the business money to buy equipment - and pay myself back on better terms than what an equipment company will do for you.
  2. John from OH

    John from OH LawnSite Member
    Messages: 144

    Credit is a business tool that must be used wisely. If you know your costs, you can easily calculate whether you will be able to pay back a loan. Corban mentioned $250 a month in payments to save 2 hours per week. In this case, 8 hours of billable time per month would be available. Aauming $40 per hour times 8 hours equals $320 in additional revenue per month. The length of your season comes in to play. Figuring a 8 month season (24 weeks) would yield an extra $2560 in revenue. 12 monthly payments creates a cash outflow of $3000 per year. In this case there is no immediate gain. Downtime with existing equipment, fuel economy, depreciation, and other incidentals also have to be considered. Will your present mower last the next 3-4 years?

    A 10 month season would make this deal look better with $3200 in increased revenue versus $3000 in payments. At an additional 75 billable hours per year this deal breaks even on paper. This is a very simplified version of how to check equipment purchases for their financial benefit. Work your numbers or have your accountant work you numbers.

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