Debt Free business

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

  1. MDLawn

    MDLawn LawnSite Bronze Member
    Messages: 1,284

    First we're all never going to agree just like a Ford, Chevy, Dodge, Gas vs Diesel debate. But I'll give my thoughts anyways:dizzy:

    I agree that if someone is offering 0% on something, even with a small fee, why not? Lets say you have $10,000 in the bank and are ready to get some equipment to start. Say you have a truck already but need a trailer, mower, handhelds, etc... Me I try and buy good stuff, not junk.

    Option 1 - Buy everything with the cash you have and have about $500-$1000 left in the bank.

    Option 2 - Buy hand helds, small trailer, and "stuff" with cash, 0% on mower and have $6000 in the bank. Lets even take the $175 fee. $5825

    I like option 2 because it leaves me with some operating money, income money or "oh no" money. Lets say the truck you have all of a sudden needs repairs to the tune of $2000. Choosing option 2 lets me pay cash whereas option 1 leaves me stranded or actually using a credit card that is subject to 19% (or whatever) interest!

    I agree no one should finance their life away. But I think having a safety net of cash is more important than blowing the bank just for the sake of paying cash. What I would try to do is have say $5000 in your cash account at all times for emergencies. Say you want to get a new back pack blower that is $450. Once you save that $450 and have $5450 you then go buy that piece and still have your safety net. Now if you started with $15,000 and want to spend $10,000 on stuff then fine but I still would like to have $15,000 for rainy day fun. I mean for a measly $175 it allows you to keep $15,000 (or whatever amount) in your bank account that could earn that $175 back in interest without lifting a finger. Rather than having to build that account back up, which was your personal money, you use the income from your business to pay off your business expense on a monthly basis and can rely on the cash for the "oh no" moments. Whether you pay for a $5000 item in cash or 0% payments it is an expense that needs to be recovered. Just because you pay cash and "owe" nothing on that item doesn't mean it's a forgotten expense. You are still out $5000. You still need to recover that! Especially if it was your personal cash. Because you paid for it, not your business, and your business owes you (which in this case you are the lender to your business).

    If you are making money hand over fist then this is not even an issue. But c'mon its lawn maintenance and landscaping not exactly a hand over fist business to start up. I like the idea of paying cash and will try to do it as much as I can but if something can make me more efficient, expand my services and/or customer base, I'm going to take a long hard look at financing. I financed a dump trailer (0%) and had it paid off after a few jobs but I look deeper in that saved me time, got more jobs done, put years on my life (not needing to hand shovel debris out of the truck at the end of the day), and my business paid for it.

    Obviously dont be a dummy and finance stuff that leaves a gray cloud looming over you wondering if you'll be able to get out of it!
  2. 32vld

    32vld LawnSite Gold Member
    Messages: 3,983

    If you got to pay a fee to get 0% finance then you're not getting 0% finance because a $3000 machine should only cost $3000. Not $3000 plus a fee.

    Always better to be debt free.

    Bad economy's have caused many businesses to fail when their income did not cover their expenses.

    When equipment is bought cash, elective expenses can be cut. Use less electric, less heat, less food, less clothes, less going out, etc.

    Doing with less will increase the chances to weather bad times until the business gets back on track.

    Having a bunch of equipment with monthly payments there is no way to cut those expenses and ride out the hard times.

    With paid off equipment even if you only are now mowing 1 day a week those machines bought with cash are not costing money sitting in your shop the other 4 days. Remember that not making money is not the same as costing you money (payments due).

    Yes large businesses can not operate without credit. The CEO's sign on the line for the Corp. Yet when the corp goes belly up the CEO's get to walk away.

    LCO's are not large corps, and many banks will make the LCO personlly guarantee the loan against their personal assets because they are not large corps.

    Now if I had $5,000 or $50,000 cash to buy a mower or a truck and would get 0% interest I would not pay cash. I'd leave the money in the bank and collect the interest. Keep my momey to make money and not have to worry about paying the loan because I have the money on hand if things slowed down. Best of both worlds.
  3. hackitdown

    hackitdown LawnSite Silver Member
    Messages: 2,621

    I am 7 years into this business, and was all cash/no debt until this year. I decided to buy an Exmark ZTR for $10K this spring. I planned to pay cash.

    I financed instead. They offered 0% financing for 3 years. I used the cash I had saved for the mower to buy an aerator for $3K, and I bought a plow for $4K. The aerator will generate $3K to $4K in revenue, and the plow will generate around $8K this winter. I have the option of paying down the loan anytime.

    So the way I see it, I have $11K extra revenue because I bought the other equipment. After I deduct the $7K I paid for the equipment, I will have an extra $4K in gross profit. Next year I'll have all $11K.

    I think it makes sense for me since I have a very high likelihood of keeping all the equipment busy enough to generate enough revenue to fund the purchases. I think some guys get into trouble because they buy and finance stuff that sits in the yard. They want to be sure they have every kind of machine made.
  4. MDLawn

    MDLawn LawnSite Bronze Member
    Messages: 1,284

    This is exactly the point I'm trying to make. If you have the cash on hand to pay for the machine, and more, go get the 0% and then when you have enough over your 5 or 50k to pay for it then do so. I'm not sure how that is any different then paying cash up front. You made the cash to pay for it and still have the savings to cover bad times. I'm not so sure why people feel the need to empty their bank accounts to just pay cash? It's 0% or 0% plus a fee and I bet if you are a good enough consumer you can talk the dealer down $175 on the equipment to cover that. So then it could be 0%. Its all one big pie no matter how you slice it. I mean it's not like your paying $2000 interest on a $5000 machine. Your paying $175 to have the convenience to pay it later, but again you talked the dealer down the $175 so it doesnt matter :dizzy: :)

    Also what if the machine you bought on a $175 fee made you more productive which allowed you to complete more work and acquire more jobs which then made you a good amount of extra money that year on top of paying it off. Small price to pay if it can make you more in the end! Maybe I'm that guy and took jobs that you could have acquired but you only made the same amount this year and cannot take on more work until next year when you have the cash but those accounts are now gone.......

    Even if your business went south and failed I'd rather have the bank money to live off of while trying to sell the piece of equipment. Try doing that when you have little savings because you emptied the bank just to pay cash. Again whether you paid $3000 upfront or still owe on a 0%, you're still out $3,000 or fine $3,175, unless you talked the dealer down:laugh::).

    I think the key here is having savings to begin with! It gives you more leverage on making purchasing decisions.
  5. I don't get why people want yo empty thier accounts either. If you can keep cash in the bank and use someone else's money, why not? I never turn down 0% offers. I bought a brand new set of tires back in march from sears. I put it on my sears card and got 6 mo. 0%. Yes, I have the money to pay for them up front, but if I can keep cash on hand, why not?
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  6. tlc1994

    tlc1994 LawnSite Senior Member
    Messages: 290

    The original discussion aimed at how people maintained a debt-free business, not whether what medium of currency was superior...

    Still, I always refer to cash is king as in, don't buy something if you can't actually afford it (like we have grown so accustomed to seeing our expenses disappear on a magic, plastic, debt card). I don't think the OP was partial to cash only, but the main premise behind using a CC if you choose to do so is having the capital to back it up.
  7. larryinalabama

    larryinalabama LawnSite Fanatic
    Messages: 19,379

    I have no idea how you can keep up with all this nonsence, personally I dont buy a 3000 mower and tires every year, or every 2 years so when its necesssary I just pay cash.

    Reality is thers no such thing as free interest.
  8. On the tires, yes it is free financing. On the mower, it was a $125 fee. Divide that by 36 and it's about $3.50/mo. Good for you, keep paying cash for everything. If you talk to any businessman, or finance prlerson, they will tell you 0% interest is a smart thing.
    Posted via Mobile Device
  9. PTP

    PTP LawnSite Bronze Member
    from Tulsa
    Messages: 1,398

    I am a business man and I am all about paying cash. It's not only about saving the interest money but it is also about making smart decisions. Paying cash will help you make smarter business decisions. It will help you to buy only those things that are really necessary. It will also make your bad decisions less painful because you won't have your leverage working against you.

    This year, I wanted to expand. The problem was that I also needed more shop space, more equipment, and more advertising. I budgeted carefully, planned as best I could, bought used equipment, built a mezzanine in my shop, and added a couple hundred new accounts.

    I won't say that it was easy, but I did it - with cash.
  10. MDLawn

    MDLawn LawnSite Bronze Member
    Messages: 1,284

    The problem with any 0% is that many people have no idea how it works, forget to make payments, dont pay off before 0% expires, etc.... Those types get burned...bad. For this type of person cash is probably the best option (not saying anyone in this discussion, just in general).

    A lot of folks in this business aren't to bright.....just attracts the type. A friend of mine who works for a bank told me stories of how a mutual friend of ours would show up at the bank and just hand over checks without even knowing how much he was depositing. He is definitely a little behind the curve but he can sit on a mower and drive a truck. This poor guy couldn't handle running a business, this is just his job. He'd probably make better money working for someone else. 0% deals are not for him.
    Last edited: Sep 20, 2011

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