Managing Major Equipment

The vast majority of landscape work is labor intensive. But very rarely can landscape employees be found in the field without some piece of equipment in their hands. And, quite often, putting that piece of equipment in the field requires a major investment by a landscape company.

How does that piece of equipment – that trencher or tractor or skid-steer loader – end up in the field? What is the best way for companies to select and pay for these big-ticket items? After all, contractors can easily spend in excess of $20,000 on some machines today. And many manufacturers have done a great job of increasing the versatility and functionality of their machines in order to help contractors become less dependent on hand labor, but that doesn’t make the machines any more affordable. Instead, contractors now need the machine and three or four attachments to get the most value for their purchasing dollar.

Contractors who have gone down this road, however, seem to be in some agreement as to the best paths to take to get to the final destination. Owning is better than renting. Buying is preferred over leasing. New is preferred over used. And, above all else, equipment is preferred over employees.

WHAT’S MINE IS MINE. Obviously, there are many advantages associated with owning a machine as opposed to renting it from a local dealer or rental yard. Owning a machine means that piece of equipment is almost always available when you need it. Owning a machine also means not spending a lot of time driving back and forth to pick up or drop off a rental. But owning a piece of major equipment also usually means spending a lot of money to acquire it, whereas renting requires less capital.

"We buy everything because we get a better deal buying vs. renting," explained Mary Ann McKnight, general manager, Clearwater/Summit Group, Spokane, Wash. "Then we resell all of our equipment when each piece gets to a certain point in terms of hours of use. For example, we sell skid- steers at 1,500 hours, but we’ll try to get more out of our backhoes before selling them.

"Add-on work is where you find yourself renting more because buying a machine is less beneficial," noted Richard Raley, president, Ultimate Landscapes by Interra, Gambrills, Md. "The rule of thumb for us to buy a machine is that we have to have the work contracted first that will keep that machine busy after we buy it. For example, you may have one piece of equipment, like a trencher, and then you find that it is getting used so much that scheduling its use is a challenge. We’ve had situations where we’ve had to rent as many as three trenchers at a time to keep the crews moving, so then we know we probably need to buy at least one more trencher."

"My controller does a cost analysis based on the usable hours for a piece of equipment," explained Michael Sweeney, president, Sweeney Landscaping, Stamford, Conn. "We want to know how much out of a 40-hour work week or how many hours out of a whole year that machine is going to be used. If the machine is going to be used enough, then buying will be more affordable than renting."

"Renting is normally done to fill an occasional need for us," related Kris Parker, owner, K.P. Landscape Design & Installation, Layton, Utah. "When we get to the point that we can set up a full crew and equip that crew with enough work to use a machine, we’ll buy a new machine."

Sweeney also noted that buying equipment can pay off indirectly in methods than many contractors don’t notice. "We warehouse bulk mulch, so we need to be able to load our own trucks," he explained. "We use our skid steers to do that, and we end up using those machines probably 80 percent of the year. Hands down, that makes them a cost-effective purchase. Then, instead of buying wholesale bark mulch from warehouse and paying $20 per yard, we buy mulch in 100-yard tractors and pay $10 per yard. We couldn’t do that if we didn’t own our machines."

Raley said he often will rent a piece of equipment or a couple of models of the same machine before making a purchase in order to test the various products. But he prefers to avoid renting machines for an extended period of time, if possible.

"If we’re going to rent a machine for one week each month, then we might as well buy the equipment because the rental fee is practically as much as the monthly payment," Parker agreed.

TO LEASE OR NOT TO LEASE. Cars, boats or skid-steer loaders, the question remains the same. Are contractors better off buying the product and paying more but eventually owning the equipment, or are they better served by spending less via a lease that ultimately leaves them with nothing at the end of the deal?

"We always buy our machines, although I don’t necessarily know why," Raley admitted. "We have competitors who we know prefer to lease and that may not tie up their credit like buying can, but we like to buy equipment and then we’ll run it until it’s decrepit."

Parker, however, is more open minded about leasing equipment. "We lease, but that’s more for tax purposes," he explained. "We’ll set up a lease for anywhere from a three- to five-year period, and then we can write the lease off whereas if we buy the equipment, we have to depreciate it."

Parker also noted that most of his leases include a buy-out clause that gives him the option to purchase the machine once the lease is complete, for an agreed upon price, which he said is typically $1.