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Old 06-28-2004, 11:44 AM
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Business Loans

How many of you took out a business loan when you were just starting out??

What did you invest the money in??

Was it worth it??

Nick
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Old 06-28-2004, 06:35 PM
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I did.

My first loan was for a new truck, and I subsequently took out additional loans or refinanced the original one to add more eqpt.

As a matter of fact, in one month I will be debt free when it comes to these long-term liabilities.

Was it worth it? I'd say so - we couldn't do the work we do without the equipment we have, and we didn't have the money to pay cash for it at the time.
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Old 06-28-2004, 07:20 PM
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I have alot of mixed feelings about loans.

My original plan was to do what I'm doing now for this season and probably next, which is sub some of my labor on larger projects.

I have kind of a unique stuation I guess in that I have pretty good relationship with another company which works in my area and southeast of me mostly.

I pay him as a sub to come and install my designs, I take care of materials and logistics, to an extent.

I'm able to save alot of money because I dont have to pay a crew to be lazy during the slow periods, like right now.

My origninal plan was to kepp doing what I'm doing until my name is more established, then start hiring late next season or the season after and buying more equipment in small increments as I go.

But there are alot of people around me telling me to take out a loan and go for it all.

I'm not sure if this is wise or if I need to take that risk. I have a feeling this is why alot of companies fail.

It just kind of pissed me off today when I had someone much older than me tell me "I havent started a company, I'm simply making myself a wage."

Be it as it may, I am taking it pretty conservatively, and you dont see me pushing around big white f350's with my name plastered all over the sides, but I'd rather spend the money when the moneys there and be pretty obscure, than stretch myself thin and not be able to sleep at night because I have 90k in car and equipment loans.

I just feel like theres a very thin or perhaps very thick line between the amount of money you can spend or borrow and the exposure it gets you.

Nick
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Old 06-28-2004, 07:51 PM
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If you're thinking that buying big trucks gets you exposure, then that is certainly the wrong reason to take out a loan. Take out a loan because you can't do the work you're selling with the equipment you have. Or take out a loan because you can't keep up with the workload with the eqpt you have. My first loan was for $17,000. Pretty small. I did hear of someone taking out a loan for $300,000, buying everything he needed for something like 3 crews, right out of the gate. This guy had never run a business before. I can't see how a rookie could manage that kind of debt, having no experience with it.

So sure, take out a loan, but don't bite off more than you can chew.
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Old 06-28-2004, 08:43 PM
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What the loan is for is a bigger question that I would have. Are you looking to use the money for equipment or to finance the company? How much work do you have, and are you selling more than you can install? Is it possible for you to sell more? Do you feel limited by what you can do or what you can sell?

A line of credit at the bank or with suppliers will get most new companies started. When it come to equipment you have to gage what you are spending on labor and equipment rentals VS the loan cost over time. Any thing that takes over one year to recover it's cost better have more use that something that takes just a few payments. An example would be for me a slope laser, the first one I bought cost just over $5K, add on the attachment and the tractor and we are talking over $37K, now that equipment saved me over 300 hours the first year, but added another 3 jobs that we where able to complete. It took two full years to fully recover the costs but the labor savings and added jobs paid off in the end.

I would sit down with your accountant and go over what you what to do and find out if it makes dollars and cents to do what you want to do.
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Old 06-28-2004, 09:12 PM
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So far in business I have waited until it was absolutely necessary to make any major purchase before I actually made the purchase. For example when I bought a skid steer it was to save money on rental charges because I was renting skid steers a couple of days each week. The only thing I bought in the past 9 years in anticipation of needing it later was lawn equipment. That never really worked out for me, and I sold it all.
Right now I have a debt free company. My accountant doesn't like it, but it sure makes me feel confident. Will I borrow again- sure... but only when I really need to have a new piece of equipment.
As for just earning a wage- thats fine if eventually it blossoms into a successful company.
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Old 06-28-2004, 10:32 PM
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I dont think I made myself very clear.

I absolutely dont want to take out a loan if its not absolutely necessary.

I'm the type of person that would rather work a little bit harder to live with less debt. I cant stand being under the gun like that.

I dont have alot of work, in fact, I dont have anything right now, it sucks.

I couldnt see myself taking out a $300,000 loan right out of the gate like that. I just dont understand the logic behind this. Starting out you should have very little overhead, its great in a way. The way I see it, your overhead will increase as you grow, and the trick is to not let it grow too much.

I think I'm just surrounded by alot of backseat drivers.

Man, thank G-d for this site, I dont know what you old timers did back in the day (perhaps some of that face to face stuff I heard about).

Thanks

Nick
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Old 06-28-2004, 10:35 PM
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I've always considered loans as a 'time machine' for the business. The fact is, we are only on this earth for so long. The financial logistics of idependently saving up and building a business from scratch and turning it into a billion dollar industry do not equate.

Sure, some day you may be able to own 600 trucks and never have had to make a payment, but the bottom line is it is probably about as likely as winning the lottery.

You need to think long term. Where do you want your business to be in 5 years........10 years..........and more importantly, where do you want to be personally in the years to come.

Do you have dreams of installing million dollar landscape jobs??? or have you decided that if the biggest job you ever do in your lifetime is 20k you will be happy.

Sit down and run the numbers. If you have visions of living in a milliion dollar home with a BMW in the driveway, a boat at your shore house, and plans to travel the world, then you will realize that without loans, it is never going to happen.

You can only do so much with what you have. There is a 'salary cap' on what you can accomplish on your own. If you sit down and do some planning, you will most likely see that in order to obtain your goals you will be 200 years old by the time it happens.

This is why I call loans 'time machines' They take you to a place in the future in a much a faster way than you would be able to yourself.

And loans are not just all money. Perhaps, the money is not what drives you. Just go to NYC for a day and you will see what loans accomplish. Loans are a means for the impossible to come true. Skyscrapers are not built by one person.......they are built by large cooporations drawing money from multiple resources. Donald trump doesn't spot the money for his building empire. Investors do. There's not one building he has that he spotted all the money for. Yet, there they are, all over the place, and there he is, a very wealthy man.

So, the bottom line with loans is what do you want your business to accomplish........and most of all, what do YOU want to accomplish.

Once you get a perspective on this, the answers become much more obvious.
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Old 06-28-2004, 10:39 PM
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Nope. Just learned stuff the hard way.....

And wait a second....who's an 'old-timer'?

Even though you really don't want to take on debt, there may still be a good time for it. You usually can't rent a dump truck (maybe you can in a big market - or sometimes people lease), but it might be hard to do the volume of work you need to do to afford a dump truck without having a dump truck. Kind of a catch-22. Taking on some debt can allow you to do that.

And yeah, it hangs over your head, but so will your $800/mo Yellow Pages bill that you have to pay in January when nobody is calling, or the rent for the garages where you store your eqpt.

It sounds like you're on the right track, not looking to live beyond your means. Stick to that and you'll be in good shape.
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Old 06-28-2004, 10:40 PM
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Darn it - Penn zipped in before me.... Must be a faster typist.
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Old 06-28-2004, 10:46 PM
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Quote:
Originally posted by tfld
I dont have alot of work, in fact, I dont have anything right now, it sucks.
You have answered your own question. With out work why borrow money!

But Penn is right without the ability to borrow money I woun't be looking forward to retirement or have the BMW in the drive. One of the first things you need is the drive to get the work, after that you must make sure that you run your business at a profit and that means you need to make more than just a pay check.

Last edited by Paul; 06-28-2004 at 10:51 PM..
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Old 06-28-2004, 11:53 PM
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I don't have much wisdom to pass on, unlike the "Old Timers" , but I can tell you how we grew.

In '95 Spiderlilly and I assumed a loan for 17 large from my parents to finance a used 1/2 ton Chevy Pickup with 60,000 miles and a soon to fail transfer case. We had one account, that proved a cash cow, and used that cornerstone client to grow into the billion dollar company we are now, Omniscapes International...

Just kidding, we are actually very small, but make a good living doing high end work.

Every year, except this one, we had to borrow short term to cover Spring start-up expenses.

We have also financed a 37" deck mower, sod cutter, and now, a Dingo. Absolutely, it makes for pressure, but I sure the hell know its worth it when I move 5400#s of limepack for a flagstone path in under an hour, like I did this afternoon, and am still sitting upright and typing at 11 p.m. the same night.

I agree with Pennscapes and Paul, who both said in their own ways the same thing, that it really comes down to what you want to do. I wanted to work outside, use my mind and body, make a lasting positive impact on the planet, have ample time for my family, and earn an honest living. I had no aspirations to be huge; even pondering a second crew sends me scurrying for the stereo. Thus, there was never any need to go head over heels in debt.

So, figure out them goals, and go for it!
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Old 06-29-2004, 01:58 PM
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Thanks for all the insight everyone. I really appreciate it.

Nick
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Old 07-09-2004, 12:45 PM
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I think sometimes you have to spend money to make it, so you might want to borrow even if you don't have work.

Somewhere in the beginning I read that you should spend 10% of what you want to gross on marketing. Rules like that are stupid and dangerous, but it helped me get over the fear of spending that huge chunk on marketing, and gave me a goal and a budget.

And it worked from the first year, and every year since, so go figure!

That is not to say that I think spending = effective marketing. In fact, I think the most expensive kind is usually the least cost effective, but a big splash of cash on advertising can lend legitimacy to a start up.

Last edited by spiderlily; 07-09-2004 at 12:49 PM..
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