How much debt?

Mitty87

LawnSite Silver Member
Wondering how much debt you guys think is ok to carry from your own experience, doing landscaping work. The first 3 years I only carried a $500 monthly truck payment and have a one ton paid off. Decided to add 90k in payments over 5 years on a new one ton and mini excavator. I feel ok with the payments as we will do over 400k with 4 labourers total and about 250-270 gross profit or so, but wondering if I am at my max debt now.
 

JFGLN

LawnSite Silver Member
Wondering how much debt you guys think is ok to carry from your own experience, doing landscaping work. The first 3 years I only carried a $500 monthly truck payment and have a one ton paid off. Decided to add 90k in payments over 5 years on a new one ton and mini excavator. I feel ok with the payments as we will do over 400k with 4 labourers total and about 250-270 gross profit or so, but wondering if I am at my max debt now.
If you have that much profit why don't you pay cash for your excavator? That much debt would make me nervous.
 

andersman02

LawnSite Senior Member
Location
Snowy MN
Keep the amount coming in higher then the amount going out.

Debit is a personal threshold only you can set. Some say 0 debit is the only way to go others have everything leveraged.
Dead on- Some people dont want debt, some use it to there advantage. As long as you can keep up with money going out with your production comin in, I see debt as a tool.

Our trucks are 100k each, we've gotten 4 new ones in the last 6 years. It will be tight this year, although PPP has helped alot. In addition to 2 of those trucks, 2 of our "personal 50k" vehicles will be paid off next spring.

Thing is, with this debt, we wont be paying anything in federal (I think) taxes for atleast 5 years. We also have not had 1 truck break down this year, one of the perks of having newer equipment. We reinvest almost all of our money each season. Just how we do it.

The other end of the spectrum is keeping older equipment and saving that money, or pocketing it, instead of going into debt. If your 100% set in your marketing, equipment, and tools, that can be fine and work also
 

Mark Oomkes

LawnSite Fanatic
Location
Grand Rapids, MI
If you have that much profit why don't you pay cash for your excavator? That much debt would make me nervous.
That was gross profit, not net.

I have far more than I am comfortable with. But to be comfortable I would have zero debt. Tried that for several years and spent WAY too much money fixing trucks and mowers. I wasn't comfortable with that either, especially after my accountant politely told me I was being an idiot by running trucks into the ground and constantly fixing them.

He was right.
 

andersman02

LawnSite Senior Member
Location
Snowy MN
That was gross profit, not net.

I have far more than I am comfortable with. But to be comfortable I would have zero debt. Tried that for several years and spent WAY too much money fixing trucks and mowers. I wasn't comfortable with that either, especially after my accountant politely told me I was being an idiot by running trucks into the ground and constantly fixing them.

He was right.
I agree- downtime KILLS productivity, as well as moral for the employees. One thing I started doing was always having a backup plan for the time came when a truck went down. Currently all of our spray trucks go out each day, if one goes down, they can hop in a pickup and do other production then spraying. Luckily we havent had that happen but it will.

As well, the smile you get from an employee when they find out theyll be using a new truck with all the bells and whistles (read that as power windows, AC, bluetooth, not leather etc...) is priceless. Definately helps with moral.
 
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Mitty87

LawnSite Silver Member
I could have had paid for my new truck and excavator, but with the personal situation my wife and I are in, we have spent over 100k past our normal expenses on down payment and renovations on our first house. (in past 2 years). So we have neglected putting as much money towards the business as we should. The 2 trucks I have were paid for cash for the f350 and 50% down on our 2017 GMC 1500.

Houses are expensive where I am and so is commercial space, but we decided to buy a house where we could keep our 3 trucks for now. Instead of renting or buying commercial space and staying in a basement suite.
 
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Mark Oomkes

LawnSite Fanatic
Location
Grand Rapids, MI
I agree- downtime KILLS productivity, as well as moral for the employees. One thing I started doing was always having a backup plan for the time came when a truck went down. Currently all of our spray trucks go out each day, if one goes down, they can hop in a pickup and do other production then spraying. Luckily we havent had that happen but it will.

As well, the smile you get from an employee when they find out theyll be using a new truck with all the bells and whistles (read that as power windows, AC, bluetooth, not leather etc...) is priceless. Definately helps with moral.
I had 2 employees thank me for upgrading our salt trucks this past winter. They weren't even brand new, but they're a huge improvement over what we did have.

Now everything I own is newer than 2002. Lol
 
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