Question about loans

[njnewbie]

I'm looking to take the business big next season, and I anticipate needing about $60,000 in preseason up-front expenses.

My credit history is as follows: I have about $40k in student loans that I need to pay off, but they're in my parents name so it shouldn't affect my credit. I have a credit card but I've only used it for about $500 in purchases.

About half of the $60k is equipment, which I figure I can finance piece-by-piece.

Can anyone give me a very brief rundown of the options I have? Are there generally any advantages in terms of interest rates to borrowing in one lump sum vs borrowing from many different sources? And what is the largest amount I can expect to borrow safely? Based on net profit projections which are pretty conservative, I should be able to pay everything off about 3/4 of the way into my first season, so even if it's a somewhat risky loan I'd be willing to make the gamble.

[Seascape]

I'd be willing to make the gamble.

60k is alot of debt unless you have 3 year contracts in excess of at least 4 times that.

Never gamble with your business. Take chances,,,,,, but dont roll the dice on 60k.


I know that doesnt answer your question but thats the best advice i can give you.

[njnewbie]

If I had a gig similar to yours, I would completely agree, but I'm a mow & blow operation and I run solo (sometimes two-man) crews with 21's, workers payed per lawn not hourly. Equipment repairs, maintenance, and especially fuel costs are very low and payroll vs productivity never changes. Right now I have a little over 100 accounts. I have a few reasons why I'm willing to roll the dice:

1) I'll be living at home next year so I basically have no bills to pay (one more year of college left; but last semester will be really light so I'll basically be able to live at home and still pass my classes). By the way I contribute on groceries. You can knock me all you want for it, but most of my friends won't even be finished college next year (5th year seniors) and 99% of people I know who graduated live at home for at least a year or two afterwards. I plan on just taking one year at home which isn't so bad.

2) I'm switching to credit/debit-card only billing next year, charged the day after each cut, so there is little risk of getting screwed by customers or having to carry them for weeks or months. Most importantly there won't be a risk of having to ever compromise loan payments and payroll, since the labor cost is built into the price of each lawn (I pay per-lawn-completed rather than hourly).

3) My flyers and doorhangers have a 3% sale rate, and I've only advertised to about 10% of my area (and even those houses I've only hit once the whole season; also the unadvertised and advertised areas have similar demographics). I could very easily have 400-500 lawns before the start of next season. If you do the math (avg lawn will be about $28) paying back the $60k would not be that much of a gamble. Net profit per cut is 40-45%. Since I'll be switching to credit-card only, I'm reducing my sales-rate projection from 3% to 0.5% (a fair amount of old people in my area).

4) Equipment, trailers and vehicles make up about 60% of the loan. I'm anticipating most of it lasting at least three years. The rest goes towards insurance and advertising. Bottom line is I'll need to bank at least $25k by the end of the first season to cover these costs for season two.

For mow and blow, at least half of signups stick with me the whole season, so income is somewhat stable. If it was landscaping or high-end lawn care I would be much more apprehensive about it.

[njnewbie]

By the way mowing season around here is 24 weeks, steady growth for 22 weeks.

[GeeVee]

You should be talking with a banker, not us.

About half of the $60k is equipment, which I figure I can finance piece-by-piece.

If half of the 60 k is for equipment, what is the other 30 k for?

My credit history is as follows: I have about $40k in student loans that I need to pay off, but they're in my parents name so it shouldn't affect my credit. I have a credit card but I've only used it for about $500 in purchases.

With your non existant credit, I don't see anyone lending you that kind of money. In other words, you don't have any credit. Your parents may have some debt to income ratio left they could borrow against, but you simply don't have any history.....

I'm anticipating most of it lasting at least three years

Your anticipation of having the goods last three years is seriously flawed.... Where is the ROI at?

With such a low, and certainly manageable overhead, you'd be way better off paying cash as you go.

[njnewbie]

Not sure what you mean by where is the return on investment? It'll be my gross sales 100&. I think it's reasonable to assume that Redmax trimmers and blowers and commercial Lawnboys and Toro's will last 2-3 seasons. Even if they last two years (or even one year), it wouldn't cripple my business at all.

I could pay cash as I go, but the problem with that is I want to have at least eight high-quality high-paid workers lined up before the season starts, and I'll need to have the lawns and equipment to keep them working.



I'm putting about $15k into advertising (most of the cost is payroll to distribute...which will be due before any income from the season comes in). I'm stepping up the doorhanger quality and the volume big-time since I'm asking people to hand me their credit cards before we start service.

Like I said I'm pretty clueless with this stuff..but I will have enough money before next season to buy a low-priced house (putting 10% down and paying mortgage). If I bought a house for $150,000, would I be able to borrow against it as an asset? I would revamp the landscape, paint, etc too to assure I made some profit on the deal to counter the mortgage payments).

[Scaper-S2k]

I'm a little confused. You want a $60k loan for equipment but you only expect it to last 3 years? Seems like much too short of a life span.

You would have to tell us what you are expecting to get and maybe we can help you out a little better.


You're going to have some real issues on this one though. The main issue is no tax records of how much money you made or make. You said you have no real paper trail. So you're basically going to go into a bank and ask for $60k to start a biz with no real experience in their eyes. Don't get me wrong, it can be done. But you will need to have 'something' to give as collateral.

It's going to be a hard road for that.

But again, we don't really know what you are hoping to purchase.

[Elwood]

Sounds like you have a good start on your business plan. Here are my concerns. Since you are a one man show with a helper, employees, training them and getting them to provide quality on a per cut basis, systems for those employees, the costs of those employees, etc. you have not mentioned.

These will be questions that a good banker will ask. You will have growing pains when getting into full time employees and you being as school several hours per day will make growing pains tougher. Quality control will be tough, as will training. Getting new clients may come easy, but only a few employee screw ups will damage your reputation quickly and make getting new clients tougher and slow growth.

Regarding your loan, equipment provides it's own collateral, but what about your advertising portion? You will need collateral. A good business plan will help sell the deal for repayment, but if you don't have enough collateral, they will cut you short.

My advice, for wanting to make a jump like this: Buy a very inexpensive truck. Something that will do the job for the season, possibly two. Something that you get bought right, use it for a year or two and then be able to sell it for what you put into it, if you decide to. With new trucks selling at zero percent financing, employee discounts, etc. used trucks get cheap as well. Also, truck prices fall in mid to late winter, so deals can be had then too. Keep a keen eye out for some used equipment. Not others junk, but if you keep an eye out, you can find real good, like new equipment with a couple hundred hours or LESS for thousands less than brand new. Maybe a homeowner who had acreage to cut trades mowers every couple years, maybe someone overbought and needed to trade down, maybe someone moved to a ZTR after a tractor, then decided they didn't want it, etc. There are tons of stories behind slightly used commercial equipment that will end up saving you thousands of upfront dollars.

Remember, when borrowing, interest is NOT your friend! Buy quality, low entry cost equipment when borrowing, get it paid off soon and get better equipment when your liquid cash is in better shape.

You will need a buisness history to show the bank, as well as your business plan. A big jump like this will require you to show proven profitability with current systems and a strong cash position.

Best of luck and if I can help anymore, ask away.

[njnewbie]

At the moment I'm deciding between solo cars (all same model) pulling trailers or three-man trucks (probably Rangers or Toyotas). Figures are very different for both scenarios, but I'll post the second since it's a lot simpler to elaborate. There are a lot of variables I'm still considering in the truck/trailer configuration. It will be two three-man crews and one two-man crew. Yes, it's very similar to Justmowit. The solo style is more my own idea and it's the system I use this season. Not sure yet what I'm going with, but it will largely depend on how the labor situation shapes up come about February. There's also the professional image factor, which is important now with the credit card factor (second model obviously better here).

3 Used compact truck; $12000
6 Toro Proline 21; $7500
4 Lawnboy 21; $3000
5 Trimmers/5 Blowers/3 Edgers; $5500
Truck customizations (may add landscape bed rather than trailer); $2500
My uneducated guess on Comm. Auto and liability is $7000.
Advertising $18k

Total $55k+ $5k buffer for misc expenses (pro blade sharpener & shop tools, gas cans, trimmer line etc).

Currently I have an 86 F150 and a 5x8 trailer. Gets the job done, but has 200k+ miles and might have a season or two left in it, if that.
2 trimmers, 2 blowers, one edger. I'm not gambling these as having any more than one season left.
1 TTHP 36 and 2 Lawnboy 21's. (I only use it for the big lawns that I cut solo and when a smaller yard is too high for the 21's..usually for the first cut if it's out of control). This gets about 95 lawns a week cut (guys cut 40/wk and I cut 15 big lawns).

As a side note: school's not really an issue at this point. I'm taking a light credit load and very easy classes last semester. Since law school's out my GPA is meaningless and is already in good shape anyway because my GPA did mean something the first two years when I was looking at grad school. Basically I can get D's in these classes (non-major) and still graduate. What this means is really just attending class on exam dates and handing in papers that come close to the page requirements and use words related to the subject at hand. I go to school in NY, but I can basically live at home for March and April when the biz starts to get going, then go take my exams for a week in May. Yeah so I guess the only real valuable things college taught me is that 95% of the ideas out there are complete BS, that I can never work for anyone else and that I don't want to have anything more to do with the academic world in any sense...things I didn't know at all before I left.

[njnewbie]

If you're wondering, only reason I haven't dropped out already is for the sake of my family's sanity (overall very fiscally conservative and not too inclined to anything entrepreneurial...which you could say is just being smart, but you can compromise on the don't spend what you don't have mindset).

Here's one important thing I need to know in order to have my figures as sound as possible: can someone give me an estimate on the cost of worker's comp and other costs associated with payrolled employees. Current wage is $10 per lawn completed solo. With three-man crew it would be $10.50 per lawn ($4.50 crew leader, and two helpers at $3). Estimated workweek per man is 40 hours.

Fuel costs are extremely low. Using a car, cutting 10 lawns a day costs are $4/day per vehicle, and $5 combined for mowers & handhelds. Yeah I know it seems hard to believe. The fuel would probably jump to about $7 a day if I switched from cars to small trucks.

[steve-o]

too big ,too fast = disaster. plus your #s on new jersey ins. seem way low to me. what about workmans comp and unemployment ins. ? if you have over 100 yards now then why no paper trail on your business? that is over $60,000a season on the figures you gave. living at home with no bills you should have some money saved to take this deal slow and easy. not trying to get on your case but i just think when you go from 100 to 500 yards and solo to eight guys, you need to slow it down alittle.

steve

[Scaper-S2k]

3 men in a truck is a pure waste. I have done time tests over and over (as have many others here). On anything but very large places (like condos), you will have a lot of wasted labor. Trust me on this, no reason to argue it.


Either way:

If I was trying to do what you want to do, I would drop one guy in each truck and send out 2 men each. This WILL save you cash.

I would look for a dealer with 2 or 3 similar compact trucks and make a deal for all 3.

10 push mowers for 3 crews is over kill. 6 should be fine, with one back up sitting. 3 Toros and 3 Lawnboys? That would save you almost $4k.

No idea about your ins $$$ in your area. But you won't be paying all that up front.


Your advertising costs seem high for what you want to do. Not sure what you plan on doing though.







Again, your $60k figure is WAY high.

You would be better off buying cheaper 21" mowers......save a LOT of money by dropping the 3rd man (2 employees). The money you save can later be spent on better mowers if needed.

$450 for a (decent) mower
$300 for a trimmer
$400 for a blower.

= $1150

You need 6 of all that combo (not just 5 trimmers/blowers).

= $6900 for 3 crews, 2 of everything.

$20,000 for 3 compact trucks? I wouldn't go much under that.

I'm up to $27k and I raised your truck allowance $8k. You don't need trailers. You only need to pay 1/4 of the insurance up front. $18k for advertising? Nah, maybe $5k.

I'm up to $32k? I didn't recheck.



I don't use edgers, so figure as you will.

So let's see, getting the truck loans right now is a cake walk. Then you need a $10k loan from someone on top of that? Maybe less.


P.S.- If I was starting out 3 small crews, I would want someone to shoot me if I spent $10,500 on some 21" push mowers. Just my opinion.

[njnewbie]

Steve that might be true if your business model is seriously flawed but I think it can work here. It may be a shaky process the first year and a very big hump to clear but it will be well worth it.

Also please read the whole thread. I'm not solo, I have two employees.

95 lawns/wk (about 110 with some bi-weeklys) are my current numbers but don't in any way reflect my season gross, which is much much less than $60k. First of all for the first five or six weeks of the season I had no employees, so I was purposely cutting all my lawns every two weeks in order to handle the schedule, which needless to say lost me a good number of the core accounts that I started with. Then I picked up 60 lawns in two weeks of July. And this is the only season I've made any real money. The first season I had two partners and I made peanuts, and I made a little more last season with one partner, but nothing significant.

[Scaper-S2k]

By the way, what I posted above is IF I was going to try to do what you are hoping for.

There are other factors in you plan that you might be missing. But I'm not going into that with these posts, only your equipment and loan questions.

[njnewbie]

Skaper:

I know you have a successful company and from what I know about it, your equipment choices seem about right.

But I've used various walk-behinds for several years as both a worker and a business owner, and I'm completely sold on 21" mowers. They require no training, almost no maintenance, little money to replace; they give the best cut of any mower and do no damage to turf, they make the customer happiest...and for me, they make the most money. It seems hard to believe but I've crunched the numbers for my situation and it's true. I'm not saying they make a lot more money, but when I consider the headache factor and the low investment risk, it's my best choice.

Three men seems like a waste, and in most situations I'd definitely agree that two men is the way to go, but with 21's I think it's a little different, because the mowing times are longer and easier to estimate, and it's also easier to have both guys mow until they meet and finish the yard without sacrificing manueverability and efficiency. The way I see it, the two mowers would be the unskilled helpers. My yards take an avg of about 12 minutes to mow with two 21's. I think this would be just enough time for a skilled crew leader to trim, edge, and blow off the yard. If I can get three $28 ($28 plus sales tax) yards an hour done for $10.50 in labor costs (plus workmans comp, etc; fuel cost is about $1 per yard), I'm happy. Another reason I'm thinking three-man crews is that it's less mowers to buy (because two-man crews also would have to have two 21's), one less truck to buy, insure, and fuel, and one less crew to keep track of, and less skilled workers needed overall. Also if a guy calls in sick the three man crew becomes a still effective two man crew (or I could be a crew leader for the day if need be).

The ten mower figure was an accidental crossover from the one-man crew model. I intended on eight for the three-man crew, but considering I already have two Lawnboys with at least one more season in them (maybe more, they're discontinued 2 cycles), so yeah, I could probably get away with 6 mowers. My reasoning with 8 is that if I'm going to be taking out a loan and spend tens of thousands, I might as well plan for the future.

The need for edgers is questionable, and I don't use them now, but I would like to have them on hand, mainly because A) it guarantees a good edge regardless of worker skill, B) many Mow & Blow customers have edges that have not been edged for months, or have never been edged at all, that an edger can handle while a trimmer can't, and C) the crew leader will have enough time on his hands on most lawns to justify taking the extra time to use the edger, D) it makes some customers happier to see you using an edger.

Elwood: it's pretty amazing how much you think just like my dad, same political views (from what I've seen), and EXACT same ideas about how I should go forward in the business. I've brought this up to him and your advice is pretty much identical. Granted he's one of the smartest guys I know, but we don't see eye to eye on this stuff. My main concern with your model is that it's tough to reproduce and it seems like it's only a one-year solution. Even if it means taking a financial hit for a year, I want to put a system in place that can be guaranteed to work on many different scales and for years to come.