So Caterpillar has a new program going in right now that would allow me to lease a skid steer for $25 per machine hour with a minimum of 400 hours per year. Every cent that I pay Cat during that year would go back as down payment if I were to purchase the machine. Seems like a good deal to me since I paid over 14k in skid rental last year and have nothing to show for it. This program would cost me at least 10k but I can put that money back as a down payment. Here's my problem. My business is tilted heavily towards snow plowing/removal. I have multiple commercial accounts and make good money with them. I typically rent two skids per storm and occasionally have to add a backhoe or loader to the arsenal. During the summer, I am a fence builder/light landscaper. I could certainly use a skid during the summer and keep it semi-busy. I'm kind of worried about making the commitment on the lease and not have enough work for the skid during the summer to handle the payments and the increased insurance for adding excavating to my policy. The skid would be necessary for my fence work but it won't be seeing a lot of hours just drilling post holes and moving materials. Over the past storm, one of the rented skids got 54 hours put on it and the other had 46. It was a heavy storm for this time of year. We are halfway through our season but have our snowiest months ahead of us. Should I put off leasing the skid until this summer in hopes of making up hours on it next winter or should I pull the trigger now, use it the rest of this winter and do my best to keep it busy this summer and the beginning of next winter? As you can see, I am at a stepping stone here and not sure when I can make the leap. Doing some number crunching and analysis, I'm 90% confident that I could meet the 400 hr per year minimum. I desperately want a skid that I can call my own but I need some clear, unbiased thoughts on this one. It's a want vs. need situation.
Interesting, so with the lease you are bound to the contract to pay $9000 per year whether you use it or not. More than 400 hours and you pay per hour. What are the upfront costs, doc fees, etc that they charge? Are there any other fees in the fine print. What kind of insurance do they require you to carry? On a side note, do they send someone out from Cat financial to record the hours? Concerning your rental payments for skids in the past, were you or the rental company responsible for repairs and wear items (teeth, tires, etc). If the rental company was responsible then you have to add back into the numbers the repairs, wear items, equipment replacement costs, etc. Also by owning a machine that depreciates (that is if you decide to turn the lease into a purchase one day) you need to add that into operating costs as well. The lease may cost you more money in the future when you add back the items the rental company was responsible for. The rental is a straight expense and you have no worries if the motor takes a dump. Now for the other side of the coin, with a rental you have nothing to show for it except a receipt. You have to go to the rental store to pick up the machine and return it, time is money. For tax purposes the lease could be a total expense but talk to your accountant about that. Looks like you have a tough decision in these economic times. You stated you spent $14K in skid rental last year, so if you can get close to or below that number to own one per year, you are ahead. The real tough question you have to ask your crystal ball is this year going to be as good as the last one?
During the year of the lease, Cat pays for all of the maintenance but I would be responsible for the wear items. I tried my best but I will also be responsible for fuel Cat attaches a GPS system to the machine before I take possession. They can record the hours and location of the machine and will notify me of when a service is coming up. One part of me is saying jump on it because it is a great way to get my foot in the door of machine ownership and the other half is thinking about the huge risk. I'm meeting with the salesman tomorrow to get the paperwork and go over the fine print. I'll keep you guys updated. It's amazing how we analyze and over analyze things sometimes. I never put much thought toward my $200 cell phone bill or buying that $1,000 TV. At least I am only four payments away from having my truck paid off!
That's how the successful companies become successful.:cool2 Didn't think of GPS to track hours... ointhead Check over the docs well and consult with your accountant before pulling the trigger. Keep us informed, this is an interesting arrangement.
What would the payments be if you just bought it outright? Seems like you are already spending the money on rental stuff. On the rentals, you aren't responsible for the wear items are you? The math seems pretty simple up front. The devil is in the details. Do you need a trailer to haul it? You will immediately find about a dozen attachments you simply "can't live without" Once the spending money bug bites you, it calls its friends, and you will find yourself perma-broke. On the other hand, you have to start somewhere. My dad always said, if you don't owe anything when you're young, you won't own anything when you're old. But the one doesn't guarantee the other either.
I noticed you said you rented two machines for the last storm. Are you figuring on leasing one and then renting another when you need it or go for two lease machines? Another thing that I hate to remind people about that has already been brought up is repairs. There is always the chance of having one of those expensive waranty does not cover that problem type of repairs.
I tend to steer clear of renting whenever possible- you have nothing to show for it when the jobs are done. You may consider a 25K, low houred machine that fits your needs, there are some really good buys on equipment these days. With shelling out 14K in rent, the payback would be quick for you.
I should have all the numbers tomorrow. I'm going to check on just getting financed for purchase right off the bat. I've had a truck and trailer for a while now. I bought a gooseneck simply to cut out my transportation fees from the rental companies. Glad I did, it's paying for itself quickly. I'm planning on leasing one and renting another as needed. I'm switching things up in the snow removal department and next year I should only need one skid and will be doing a seasonal lease on two backhoes. I hear you on the repair issues. It's a bridge that I will have to cross when I get there. Hopefully, with a brand new machine, that bridge is far away. Cat is really trying to push machines. Brand new 236 B Series 3, enclosed cab, heat, bucket and an auger with 12" bit for $28K. Part of my problem is down payment money. Being right in the middle of snow season, I try to put away as much cash as I can for "rainy days" and typically wait until the end of the season for big purchases.
Sounds like you are on the ball and well researched with this deal. The only advise I can give you is check out the servicing dealer. Talk to others that use them and ask as many questions as possible. Not all dealers are ran the same. There are some very good ones out there and then there are also some that are not so good. I think you will make the right decision though regardless of which way you choose.
Well I got the fine print. We have some major bumps in the road now. The initial paperwork didn't include a two speed option and he forgot to add the auger price. The new total for the machine is just over $43k. I was also wrong on my initial number, it was actually $39k not $28k...dreaming I guess. For the short term, I feel the $25 an hour lease would save me some money. Long term, I don't see a $43k machine being doable or necessary. I don't know of any companies that started out with brand new equipment. If I wanted to spend that much, I would get a backhoe and make that work. As far as servicing, I would be responsible for wear items such as the cutting edge but I would only be responsible for tires if I got a flat, tore one up or they wore down to less than 50% of their usable life. I would also be responsible for the 10 hr, 50 hr and 100 hr service intervals. I know the 10 hr is greasing, checking oil and doing a visual inspection but I'm not sure what the 50 and 100 hr services are and neither was the salesman. I would also be responsible for air filters. I would have to insure the machine for the full replacement value while it is in my possession. Which I perfectly understand and is justified. Now, I have the salesman looking into every option that would get me into a new or used 236 through 252. I hope he comes back with some numbers which are a little more realistic for me. I may have to forget about the long term for the next year and just focus on the short term. I know it's bad business but my credit score will most likely keep from from getting financing immediately. Where's a rich uncle when you need him?