Making Do or Buying New?

Jon Sternfels of Jonboy Landscaping in Detroit knows all too well how expensive running a landscape company can get. In the past two years, he purchased a lot of new equipment to keep up with his company’s growth from $395,000 in 2008 to $445,000 expected this year. But as the economy suffered, Sternfels realized buying new every time was going to get too pricey.

Now an extensive repair-maintenance program ensures existing equipment lasts as long as possible. “One of our biggest expenses was repairs, and a lot of repairs were due to negligence,” Sternfels says. So the company started training employees on proper use, maintenance and repair. “Since we’ve instilled that, we’ve cut in half the number of things getting broken or breaking down, which saves the company a lot of money.”

“Before, if the guys needed a small tool, they’d just go and buy it. It’s amazing how much you spend when you have so much work. We were making money so it was acceptable in a way to have a few inefficiencies,” says the owner of Scottsdale, Ariz.’s Jeff Berghoff Design Group, adding that this included buying new pruners or blades instead of sharpening them. “Nowadays we’ve put a freeze on that – everything has to be approved and we’re really watching our bottom line. We have to buy smart and take advantage of deals when we see them.” For the same reasons, the company purchases items in bulk through wholesalers and cut additional costs by negotiating better cell phone rates.

In addition to smarter purchasing, “repair before replace” has become the mantra of many landscape contractors now that money is tight. In fact, 70 percent of contractors said they are holding on to equipment longer than usual compared to two years ago. Only 29 percent said they are replacing equipment as often as they usually do and 1 percent say they are replacing it more frequently.

In-house repairs have become key for many pros. William Prout of Fallen Leaf Lawn & Yard Care in Stamford, Conn., makes most repairs himself, unless it’s a complicated fix he doesn’t have the tools to tackle. Mark Lay of AA Tex Lawn Co. in Charlotte, N.C., beefed up the company’s mechanic staff. “We hired an excellent mechanic last year and brought all repairs – changing tires, rebuilding engines – in-house,” Lay says.

However, not all contractors reported frozen or decreased equipment budgets. In some cases, buying new equipment ended up saving a company in the long run. For instance, Berghoff recently purchased a reach-out forklift. “Over the years, we have spent a lot of money renting one to move big trees around sites,” he says. “Why keep renting or paying someone else to do what we could be doing in-house?”

Decisions like this could explain why a number of contractors – 44 percent – increased equipment budgets this year, 34 percent decreased them and 22 percent held them steady. Compare this to the general small business community – only 16 percent of which plan to make capital expenditures over the next three to six months, according to the NFIB’s September Small Business Survey. According to American Express OPEN’s September Small Business Monitor, only 27 percent of small business owners say the plan to increase spending on business development, such as advertising, inventory and capital expenditures, which is up from 23 percent in July, while 43 percent plan to decrease spending. Among those general small business owners reporting growth for their firms, 13 percent say these opportunities came because they had the ability to renegotiate equipment leases and supply contracts.

In 2010, 62 percent of contractors plan to increase equipment budgets, 16 percent say they will decrease them and 22 percent won’t change them at all. SOI

The authors are editor of Lawn & Landscape and a Lincoln, Ill.-based freelance writer. Send questions about this report to nwisniewski@gie.net.

EQUIPMENT TYPE	2009 AVG. EXPENDITURE	% CHANGE FROM 2008
Mowers (riding and walk-behind)	$19,372	-0.4%
Construction equipment (skid-steers and attachments, mini skid-steers, excavators, trenchers)	$74,439	2%
Sprayers & Spreaders	$3,647	37%
Trucks & Trailers	$45,619	-13%
Handheld equipment (backpack/handheld/walk-behind blowers, trimmers/edgers, chainsaws, landscape tools)	$5,387	-26%
Equipment rentals	$4,668	4%
Trees/shrubs/plants/seed/sod	$65,834	-8%
Design/build (landscape lighting, retaining walls, paver/patio products, water features)	$48,483	-27%
Irrigation products	$27,265	-3%
Chemical products (herbicides, insecticides, fertilizers, fungicides, PGRs, tree care products, perimeter pest products, organic fertilizers, biologicals)	$34,446	4%
Snow & ice melting products	$22,181	2%
Technology (computers, business/design software, GPS systems/software)	$6,120	-29%

 

 

Cash Flow Concerns
The number of general small business owners experiencing cash flow issues this fall (60 percent) is up slightly over both the previous fall (55 percent) and this spring (57 percent), according to the American Express OPEN September Small Business Monitor. The biggest cash flow worry for business owners is the ability to pay bills on time (26 percent).

When cash flow concerns arise, owners are most likely to dip into their own pockets: 32 percent of business owners will use personal or private funds, and one in four (25 percent) will put off purchases. Others will use credit or charge cards (13 percent), obtain and use a line of credit (12 percent), lease rather than purchase equipment (4 percent) or get a short-term loan in order to improve cash flow (3 percent).

Looking beyond the basic issue of cash flow, nearly half of entrepreneurs (45 percent) are looking to access capital from external sources in order to run their businesses. One out of five business owners (19 percent) say they are experiencing difficulty accessing capital. To secure the funds they need, business owners are tapping a variety of sources, including using a bank loan (14 percent), using business or personal credit cards (each 13 percent), tapping personal savings (10 percent), borrowing from a friend or family member (3 percent), and private equity/venture capital or home equity (each 2 percent).
 

Source: The Freedonia Group

Product	2003 - 2008 Annual Growth in Demand	2008 - 2013 Annual Growth in Demand
Lawn & Garden Equipment	-0.7%	2.7%
Mowers	-2.5%	3.5%
Turf & Grounds Equipment Hardscape Products	1.4%	3.1%
Trimmers & Edgers	2.2%	2.8%
Garden Tractors & Rotary Tillers	-9.4%	2.2%
Snow Throwers	1.5%	-6.1%
Other Equipment & Parts	3.4%	3.0%

Power Play
As the number of professional landscape firms continues to rise, benefitting from an aging U.S. population keen on using their services, so too will their need for power equipment through 2013, according to a 2009 Fredonia Group report.

In the short term, replacement sales will be the key driver of demand, therefore manufacturers who offer new product enhancements as a means of stimulating replacement demand for existing equipment – and who market these – will benefit most, the report predicts.

Opportunities in the commercial market will be strongest in the landscape industry.