Debt is some times necessary

Discussion in 'Business Operations' started by rockymtnnut, Feb 26, 2014.

  1. Bryan27

    Bryan27 LawnSite Member
    Messages: 152

    It doesn't, but in the context of the discussion it is reasonable to say that equipment is a significant cost and that "significant costs" lower cash reserves. Let's leave the rich folks out of the conversation and talk about the rest of us, if most people want to drop 5 figures on equipment, they're going to have low cash reserves after paying cash for it.
  2. Turboguy

    Turboguy LawnSite Bronze Member
    Messages: 1,972

    Back before many of you were born when I was young and dumb (now just old and dumb) I read a book by a guy whose name I think was Lowrey. It was titled something like How I turned $ 100.00 into a million investing in real estate. A few years after that he wrote a sequel, How I turned $ 100.00 into Millions.

    His thing was to buy property with no money down. He said he could go to a town he had never been to and buy money with nothing down in one evening. He said to start off small, like duplex. Slap some paint on it, raise the rent, then buy a 4 plex, then a 16 unit and soon you would have a million in equity.

    A few years after the sequel he went bankrupt. You can get rich with debt or go bankrupt. Maybe both, rich for a while and if the economy tanks you can go belly up.

    Look at when you buy a house. You pay more in interest than you do for the house. If you could somehow pay cash you could buy twice as much house for the same total outlay. I have only had one mortgage in my life and that has freed up a lot of cash allowing me to avoid much debt.

    The same goes for equipment. Interest is an expense. The more you pay, the less you make. If you don't have payments you can generate enough extra cash flow to pay cash for things.

    Still on the other hand, if you can utilize the equipment that you finance to generate more income than you could otherwise it can be a good investment. I think there is no right or wrong. It is what is right for you. Personally I like the feeling of knowing that if times get tough I don't have a lot of payments I have to worry about

    I would be willing to bet when the economy and real estate market went belly up back in 08 that those landscapers who had no debt or little debt were more likely to survive the downturn than those who had expanded using debt.
  3. The Gardener's crew

    The Gardener's crew Banned
    Messages: 261

    I'm not old, but dumb for 4 sure. When it comes to debt, I don't fall in the category as the other folks here 4 sure. It's funny...... Debt is necessary, its leverage, its a great business decision, its a tool, etc. All that is a bunch of GARBAGE. No one wants to work for anything no more. Give me give me give society. 15 minutes of fame. I want it now mentality. You older guys are giving darn good advice but I think its a lost cause. If there was one thing my father done right was that he said to me........... Don't worry about what other people are doing, don't go get in debt, and if you can't afford it you don't need it.
  4. The Gardener's crew

    The Gardener's crew Banned
    Messages: 261

    I am not rich. And this company just dropped five figures on a two units. We have the reserves for it.
  5. shane-pa

    shane-pa LawnSite Senior Member
    Messages: 338

    what about the small guy 2-3 years in business, 15-20 accounts, 21" and small walk behind. 10K in savings. this year, 15 new accounts. 10 mowing and 5 maintenance. walk behind broke and truck is on its last tire. is debt necessary to expand or should work be passed on to someone else?
  6. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    That's what the 10K in savings is for (I don't call it savings, it's a reserve account, just for these type situations.) First, truck should never be DOWN to it's last tire, you should have a vehicle maint schedule in place for these type things,regular mower maint should be over the winter months, the money should be there for this . Are you charging enough? 30 accounts $40-$50 apiece, two days labor, you should be ok along with a part time or even a full time job.
  7. 32vld

    32vld LawnSite Gold Member
    Messages: 3,983

    So now he will have 30 to 35 accounts.

    He can get by with using his 21". Five to six lawns a day. For six days a week.

    Spend some of that 10G to keep the truck running. Once the spent capital is replaced he then can look to getting a new 36-48" WB and pay cash.

    Being he was able to live on 15-20 lawns last year he can save all the cash generated from the new 15 lawns to eventually buy a new truck.
  8. Bryan27

    Bryan27 LawnSite Member
    Messages: 152

    Nobody is saying debt is necessary, growth isn't necessary either. What IS garbage is saying that using debt to acquire a business asset isn't using leverage, if not what is it then? Give us your definition of leverage, please! Nobody wants to work for anything? Did you live under a bridge until you had cash to pay for your house? Does going out and working and making payments on equipment not constitute earning it to you? If you put away $200/month and after 50 months buy a $10,000 mower with it, the next guy picks the his $10k mower up and makes a $200/month payment to the bank for it, the only difference is he's reaping the benefits of that asset 4 years and 2 months before you and ducked 4 years of inflation.

    Not everyone has had the good fortune to be born into a business or come from a background where they can buy their way into a business with cash on hand. It doesn't mean they are a self indulgent, gotta have it now, keepin' up with the Jones' personality, it just means they have a different business strategy than someone who has the want and cash to fund their business organically.

    Congratulations! If that is what works for you then that is great, but don't turn your nose up at those who can't yet afford to do that. There are likely examples of wildly successful businesses on both sides of the isle on this topic, to suggest there is only one way to accomplish a goal or that one is better because it's the way you choose to do it isn't correct.
  9. cpllawncare

    cpllawncare LawnSite Silver Member
    Messages: 2,659

    There are a lot of things we don't know here, do you work a ft or pt job? what are your goals?
  10. SRT8

    SRT8 LawnSite Bronze Member
    from CA
    Messages: 1,318

    Every business operates different. Some prefer no debt and some dont mind taking on debt. Either way works if you are smart and know what you are doing. It seems like this argument will never end. Theres a wrong way to run a debt free business and theres a wrong way to run a business with debt. Its a draw! Lol

    I personally dont mind some debt, im actually about to go buy a new diesel (i know stupid right?)

    Good luck to all this season,
    Posted via Mobile Device

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