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Buy, Rent, or Lease?

| Landscape Maintenance

 If your business isn't growing the way you want it to, and your profits are not as high as you expected, it might be time to look at your equipment. How many jobs have you turned down, lost, or sub-contracted out lately because you didn't have the right equipment to get the work done? Are you able to aerate a lawn? Blow out an irrigation system for winter? Grind down a tree stump?

Naturally, not many landscape companies can afford to buy all of this equipment outright; at the same time, you cant afford not to have it. The ability to perform a number of simple jobs like these can really boost your business. Every time you increase the range of services you offer, you increase your potential customer pool.

You might feel like you're stuck between a rock and a hard place you need more money to buy equipment, but you need the equipment to make more money. This isn't necessarily the case. No matter how much or how little capital you have lying around, there's almost always a way to get your hands on the equipment you need to expand your business. Even if you cant buy it, you can probably rent or lease.

On the other hand, you might not even need to expand your services you might just need a different tool to better perform the services you already offer. Having the right tool for the right job can maximize your productivity.

Consider the difference between trying to mow the lawn of a palatial home with a 45-inch walk-behind mower compared to a 72-inch ride-on mower. The 72-inch saves you what could amount to hours of time. Hours to do more work, or hours to spend more time with your family whatever you decide, you know you cant do it without that 72-inch mower. If you're convinced that you need some additional or different equipment than what you're currently using, the real question is, whats the best path for your company? Do you rent it, buy it, or lease it?

Making the choice

The decision between renting, leasing, and buying can be as simple or as complicated as you want to make it. Some companies have made a commitment to themselves that they will only buy, and rarely, if ever, rent.We buy almost everything, says Larry Holmes, president of Holmes Landscape Company, Vista, California. Even when we first started out, we rented very little. I feel more comfortable knowing I own something.

While buying is easier for some companies that have a hefty sum in the bank, other companies choose to focus on renting.

We do a lot of renting, says Dan Gortney, purchasing agent for Alpine Gardens, Greeley, Colorado. One reason for this decision is maintenance.

Aside from maintenance, renting also offers other benefits. You don't have to find room to store all of the equipment you use, and the newest, most high-tech machinery is available to you.

Leasing can be an option if you need to use a machine long term, but just cant afford to buy it, or you don't want to buy it. There is no down-payment required, just the first, and sometimes the last months payment. The monthly payments are a business expense. With buying, you amortize the equipment over a period of years each year only a portion of the purchase is deductible.

When it comes down to making the decision of whether to buy or rent, we look at need, says Andrew Morse, director of operations for Belknap Landscape in Gilford, New Hampshire.If we have a need for a piece of equipment, and find that were renting it frequently, well look into purchasing it.

Lately, Belknaps tree division really started taking off. The frequent tree work required the company to rent a 60-foot lift repeatedly. Morse says that they've put so much money into lift rentals, they're now considering purchasing one.

Gortney notes that his company has a similar philosophy, adding, If we see repair and maintenance costs getting too high on an item, well go a different direction with it. Possibly start renting that equipment instead of buying. While renting can often turn to buying, Gortney points out that the reverse is also true: buying can sometimes turn to renting.

Going from buying to renting isn't necessarily a step backwards; similarly, moving from renting to buying is not necessarily a step forwards. Its all a matter of whats right for your company, and how you want to run your business. Deciding to rent is just as legitimate a decision as deciding to buy. Before you make that decision, however, its important to get all the facts.

Renting your way to success There's definitely a sense of the pride of ownership in our culture. Who doesn't walk a little taller the day they move out of an apartment and buy their first house? Its easy to forget the range of advantages that renting can offer.

First, the most obvious advantage: renting is much less expensive than buying. To rent a piece of equipment for a day, you pay as little as one percent of the initial investment youd make when buying it, says Donald Bruner, vice president of Cincy Tool Rental in Cincinnati, Ohio. You get all of the advantages of using a certain piece of equipment, without what could be a steep price tag. Even used machines can sometimes be prohibitively expensive.

Renting can also save you a significant amount on maintenance costs. Many companies who buy equipment find that they also need to dedicate a department to handle the maintenance on that equipment. While this department could be as small as a single mechanic, that's still one more payroll you wouldn't have if you were renting.

1_10.jpg"There are some machines that we rent repeatedly every year, but that we will never buy. The time and money we'd be spending on maintenance far outweighs what we spend on rental fees. We consider those machines 'maintenance burdens,'" says Gortney. Even if you have a maintenance division, it might be more cost-effective to concentrate on the simplest kinds of repairs, such as sharpening mower blades. This is what Gortney's company has decided: they'd rather leave more technical maintenance duties to the expertise of rental companies. If the rental companies don't maintain the equipment well, at least it's not your problem, you can simply take your business elsewhere.

You also won't be responsible for storing the extra equipment if you're a renter. Warehousing equipment can be expensive, especially if you're not currently using it. Some rental companies say that they've had contractors buy equipment, and then ultimately sell it back when they realize how difficult or expensive it is to warehouse.

A few contractors, however, have found ways around this problem. For example, getting into the snow removal business can help lessen the expense of storing equipment through the winter -- the machines are out in the field, earning their keep.

Finally, an important benefit of renting can be the type of equipment you're getting for your money, which is often new and state-of-the-art. "When a manufacturer first releases a new machine or model, rental stores get them first," Bruner says. "Contractors can try them out to see how they like them before they buy their own. You can be exposed to all kinds of new equipment that can help grow your business through a rental company."

Rental companies are constantly selling off older equipment and getting in new equipment. Renting often means that you can use a cutting edge, top-of-the-line machine for a job, without having to pay a cutting edge, top-of-the-line price. You're also constantly able to upgrade, something your competitors might not be able to do, giving you an advantage in the marketplace.

Choosing the right rental company

If you decide to add 'lawn aeration' to your list of services, but do not own an aerator, you'll probably be a frequent customer at one of your local rental facilities. But which one? It seems like there are as many rental companies in business as there are leaves on a tree.

You need to find a rental company that you can depend on, particularly if it is going to be supporting a new and important aspect of your business. You're relying on that company to have equipment available when you need it, and to have that equipment in excellent working condition.

One thing to look for when choosing a rental company is whether or not they offer a rent-to-buy option. Even if you're not in the position to make any purchases now, you never know what you'll want to do down the road. You want to make sure that the option to apply your rental fees to the purchase price of an item will be available to you in the future.

Another benefit available from some rental companies: they deliver. "We try to rent from companies that will deliver equipment to our jobsites, and then pick that equipment up from the jobsite when we're done, as part of the rental cost," Morse says. "If they'll haul our equipment to and from our jobsite for us, we've found that it saves a tremendous amount of wear and tear on our trucks."

Buying's sometimes best

As good as renting can be, the companies who focus on buying swear by it. Because the equipment belongs to you, you know it will always be available when you need it. If you need it for longer than you expected, you'll never run into overtime charges, which can add up quickly. Also, your crews are familiar with it, and won't have a learning curve slowing down their work time when they use it.

A common complaint with renting is the feeling that it's an -- empty expense -- something you pay for, but ultimately get nothing tangible back. You rent a machine for days or weeks, but only end up with a fistful of receipts at the end of the rental period. Owning equipment can also save you time. You don't have to run down to the rental store to reserve or pick up equipment, wait for service, find what you need, receive instruction on how to operate it, etc. -- all of which can cost you a good amount of payroll time.

To make purchasing equipment easier, some manufacturers, acknowledging that yours is a seasonal business, offer a deferred payment plan. This system allows you to defer payments during the slow season until your business is up and running again come spring.

Landscapers use some equipment so often they feel they have no choice but to buy it. Mowers and skid steers often fall into this category. Regardless of how much a mower might cost to buy, it's almost certainly less expensive than renting one every day for nine months of the year.

It can also be a good idea to buy the attachments that you use most frequently with your equipment. Some rental companies don't like to rent attachments by themselves without also renting the machine that operates them. They don't want your hydraulic fluid running through their attachment, because they can't control the quality of your fluid.

2_8.jpgLease for the long term

You might have a situation in which you need a certain machine every day. You feel like you're pouring hundreds or thousands of dollars down the drain as months go by, continuously renting the same equipment. However, even with as much money as you're spending renting, you still can't afford to buy it.

If this sounds familiar, leasing might be a good option for you. A lease gives you use of a machine for months or years for a certain monthly payment. You're essentially borrowing the equipment for a set amount of time, at the end of which you return it to the dealer, who then sells it at a used price. While renting is a good option when you need something short term, leasing is the better option if you need it long term.

Leasing with a monthly payment is different from buying with a monthly payment in several ways. For one thing, while there are certain fees to be paid when beginning a lease, there's usually no down payment. These can often be sizable and difficult to come up with.

Monthly lease payments are also tax deductible as a business expense. While monthly payments to buy a car might also be tax deductible, the amount you get to deduct lessens over time. The longer you own and use a machine, the more its value goes down, and the less you get to deduct from your taxes. Not so with leases.

Leasing gives you the same opportunity as renting to be constantly upgrading. You can lease a piece of equipment for two or three years, by which time it may have become obsolete. You can then turn in the machine, and take out a lease on the newest model, which may have been redesigned to be faster, smaller, etc., to make you more productive.

If you lease equipment from a dealership, keep in mind that the price is always negotiable. It's the same as if you were trying to buy a piece of equipment -- negotiate the price to get yourself the best deal possible.

Ultimately, the decision to rent, buy, or lease will probably come from your ledgers, and the demands of your customers. "You make promises to yourself during the year not to live beyond your means, equipment-wise, and while it's possible to stick to those, you ultimately have to fill the client's needs," Gortney says.

Having the right equipment will help you do the job better, and doing the job better will give you a happy customer. And where one happy customer is, others are sure to follow.

 
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