Equipment ... Rent, Lease or Buy?
There is a time and season for everything-you just have to know when
Some landscape company owners manage their equipment in a binary way: buy and sell. That's it. They wouldn't think of renting or leasing equipment. They always buy equipment outright - cash on the counter - pay in full and load it on the trailer.
While that is admirable, it is not always the best choice. Lending organizations, banks and manufacturers wouldn't offer rent and lease financial products if there were not a legitimate market for them. More to the point, successful landscape company owners wouldn't rent or lease if it wasn't working for them.
So while it isn't right for every situation, renting or leasing sometimes is the better choice. Even if you have an abundance of cash, for example, that might be better invested in employees, advertisements or something else that leverages the investment and gives you a greater return than will one more machine. Having the means to pay in full doesn't necessarily mean you should.
Circumstances dictate choices in any equipment-buying strategy. Here are some of the circumstances that come into play in buying, renting and leasing.
Oops, I need a machine!
The best laid plans sometimes come to naught. We all know the feeling when a call comes in from your best long-term customer wanting unscheduled lawn maintenance before a big weekend party. The problem is your machines and crews can't be shifted from other jobs.
Solution? Call your favorite dealer or rental store, rent a unit and hop on it yourself. At the end of the day, all your customers are happy, the rented machine is returned to the rental lot, and the cost of renting it is amortized across the lifetime of your customer's contract. The surprise need for equipment can be economically met by renting or leasing.
Ideally, of course, such need would never arise. But then, ideally a mower would never quit running on mowing days nor a new retaining wall give way after a torrential rain. The word for it is "emergency," and renting and leasing programs exist for just such occasions.
Pete Poland, left, and Harry Collins, co-owners of Landscape Services-Total Lawn Care, rent or lease equipment for services that they provide on an occasional basis.
Photo courtesy of Landscape Services-Total Lawn Care.
There also is periodic need for additional equipment. The circumstance doesn't really qualify as an emergency, yet the need arises so infrequently that owning the piece of equipment can't be justified by the hours it would be utilized each year. Renting or leasing it is the smarter choice.
"I'm going to say we rent or lease once every two or three months," says Harry Collins, co-owner of Landscape Services - Total Lawn Care in Tupelo, Miss. "My partner did have a trencher for his skid steer, but it quit working. So now they rent or lease when they need to trench. In the spring of the year, he might lease one machine three or four times."
With that exception, Collins is an advocate of purchasing equipment - and maintaining it. He pampers his fleet of zero-turn, walk-behind and push mowers to ensure they run dependably for two or three years. "The bigger mowers go in two years because we use them to mow a 17-acre pasture where a lawyer sits around and mulls over plans for when he goes to court."
Collins' Exmark mowers, large and small, are traded at a favorite local dealer, and the cycle of ownership begins again.
In eastern Missouri, Adam Linnemann also prefers to purchase. He started Linnemann Lawn Care and Landscaping, Inc. when he was 14 years old. Twenty years later, the company is growing like, well, a weed. It wasn't even stunted by the recession.
"We buy," Linnemann says of his procurement strategy. "Typically, we turn over our equipment every three to five years, keeping it under warranty. Leasing never made sense to me."
Skid steers and small tractors with attachments are among the most common pieces of equipment rented or leased to landscapers at Coleman Equipment.
Photo courtesy of Coleman Equipment.
Yet there is a caveat: He does rent when his fleet of John Deere mowers, compact tractors and skid steers needs a complementary piece of equipment. A board member of the Landscape and Nursery Association of Greater St. Louis, Linnemann believes that most of his peers also mostly buy their equipment - except, that is, when an emergency arises, then they rent.
Flexing with the season
Most landscape firms are small in scope, but busy in season. In northern climes, the seasons come and go. A company sometimes cranks out big hours in spring, summer and autumn only to cut back in winter. This uneven revenue stream can play havoc with equipment cost calculations. Company bookkeepers get the numbers working for them in one of two ways.
First, in negotiating a purchase agreement or long-term lease, they incorporate a sliding payment schedule that mirrors actual work volume. With revenue pouring in (it is hoped) in warmer months, payments in those months are relatively high. In slower winter months, the scheduled payments are reduced or perhaps waived entirely.
The second way to match equipment costs to work being done is to rent or lease extra pieces of equipment as they are needed. Logan Evans, president of Mountain Landscaping in Mountainhome, Pa., has a dozen year-round employees. However, the crew can double in size in both winter and summer - or not. The winter before last, his snow removal business stayed slack when it didn't snow.
Given this uncertainty, Evans closely matches equipment to business activity, renting when demand requires it. He owns two Bobcat skid steers and a mini-excavator, plus a small Kubota tractor loader, but sometimes that isn't enough.
Adam Linnemann, Linnemann Lawn Care and Landscaping, says that it's more economical for him to rent some attachments for his John Deere tractors rather than own them.
Photo courtesy of Linnemann Lawn Care and Landscaping.
"If we rent anything in the summer, it's short-term. We rent when we are short on equipment and are busy, just one or two machines at a time," he says. "But in the winter, I might rent a Bobcat track loader for the entire season; rent it with a purchase option at the end of the rental." It all depends on how much snow falls.
Coleman Equipment Co. in Bonner Springs, Kan., a Case and Kubota dealership, experiences a different seasonal pattern. Owner Del Coleman says his rental fleet of 30 to 40 hp tractors with 6-foot spreaders is kept busy as summer wanes. "We do a lot of renting to landscapers late in the year for overseeding, from the end of August until the middle of November."
Coleman notes that compact equipment rentals by landscapers grew during the recession, with a corresponding slowdown in purchases. He expects rentals to stay popular until the economy strengthens.
"They rent until they know they have enough money to buy or just rent for a job and turn it back in. As a dealer, I really don't care one way or the other if they rent or buy, but there is good money to be made in rental if it is rented right," he says.
What pieces of compact equipment are most often rented or leased to a landscaper? In Coleman's experience it is mini-excavators, compact track loaders or skid steers, and small tractors with attachments.
When a desired machine costs in the multiple thousands of dollars, it is an easy decision to pay significantly less to rent a machine for a day or two. But how about when the needed device costs a few hundred dollars? Dealers aren't always interested in renting to a landscaper a commercial backpack blower, for example, though a good customer might get a loaner. However, rental stores always are glad to furnish one for a fee.
Slightly more expensive specialty equipment is a different story. STIHL dealers, for example, often will rent a concrete cutoff saw, which can cost $1,000 or more. A STIHL BT130 auger also can qualify for renting, especially when auger bits are added to the rental fee. Renting these smaller devices for a few days is a much less expensive way to meet a need, but the margin of savings also is smaller. If a device is a recurring need, purchasing the saw or auger becomes the economical choice.
Know thy dealer
Like any other industry, relationships smooth the way to landscape business success. You can talk to the plants and lovingly pat the slate on a new patio, but developing a friendship with your favorite equipment dealer will be more gratifying in the end.
When Collins started his company in Tupelo in 1989, he worked with a dealer in Memphis, Tenn., a four-hour drive away. He soon switched to a local dealer. His benefits far exceeded the time saved by not being on the road to Memphis.
"I have dealt with this dealer for 22 years and he takes care of me," Collins says. "If a mower needs repair, they will fix it on the trailer if they can. When I am broke down, they will loan me a mower."
His well-documented maintenance of the mowers keeps the machines humming. As an extra benefit, the care of the equipment is duly noted by the dealer and results in extra value accorded it at trade-in time.
Unquestionably, buying definitely has this over renting and leasing: You can't develop a close relationship with a rental store owner when you only see him two or three times a year. And if you see him more often than that, you might want to buy the equipment instead.
Adam Linnemann prefers to buy equipment, maintain it properly and use it while it is under warranty. He replaces most of his units every three to five years.
Photo courtesy of Linnemann Lawn Care & Landscaping.
Your skid steer skidded to a stop and refused to move again. You knew it was going to happen, but now that it has, how will you replace it in your fleet of equipment? If you elect not to make a cash outlay for a new one or to rent one to get over a hurdle, the following are your choices:
Lease or buy through a dealer - This choice is appealing for several reasons. It bonds customer and dealer through the manufacturer's financial services office. There is a lot of loyalty pledged in such a deal. Because of current interest rate policies, the deal also comes with zero percent financing. It doesn't come any better than that.
If leasing is preferred, manufacturers are prepared to do that, too. Kubota Leasing, for example, has an Orange Leasing plan that features a fixed purchase price up front, low payments (lower than purchase payments), leases that run anywhere from 24 to 60 months, and the option at the end of the lease to turn in the equipment or buy it. Leases can be for equipment costing $3,000 on up. Kubota has just gotten into leasing and East Coast territory manager Allison Sissel says it is claiming a growing share of the company's financial business.
Lease or buy through a commercial lender - Equipment financing companies work with commercial landscapers across the country, especially in the spring months. The companies also offer a range of payment terms up to five years. Because Section 179 of the IRS tax code offers accelerated depreciation up front, many accountants encourage landscape companies to buy rather than lease. Consequently, "99 percent" of transactions at equipment financing company Crest Capital are for purchases, says George Messic, a sales executive at the company's Atlanta office.
The smallest amount financed by Crest Capital is $10,000; most landscape equipment is going to cost more. Messic says the company's relationship with borrowers tends to be an enduring one, with landscapers coming back repeatedly for financing. "We have a landscaper locally (in the Atlanta region) who has used us for 15 years and is constantly buying new equipment, mowers, blowers, and everything else. People are using the loans to upgrade their fleets."
Buy through a local bank - Once a landscape owner has established a working relationship with a personal banker, a credit line can make buying equipment pretty smooth. The smaller the bank and the community, the more benefits that can accrue to a local landscape customer.
However, the first loan can sometimes be difficult because of paperwork requirements. Furthermore, a loan often is not for the full amount of a purchase price. Commercial lending institutions, on the other hand, commonly will loan 100 percent of the purchase price, approve a loan using simple one-page applications, and respond within hours. Banks can be uncompetitive in these respects.
Giles Lambertson is a researcher and reporter who has covered small business and the equipment it uses to serve its customers for more than 30 years. Contact him at firstname.lastname@example.org.