Business Is Growing!!!

[BladeRunners]

I'm a newbie here..but maybe somebody has some imput.
Our company has been in business for about 4 years now, started out as a part time thing and has really grown. This year we have started advertising and things have kinda gotten out of control. We have picked up a couple of large commercial accounts and seem to be in the position of needing more equipment, manpower etc....
Do we take out a business loan to purchase needed equipment, or use the loan to buy existing company gain more equipment, employees and accounts?

[Rustic Goat]

Instead of answering your "should you get a loan" question, I'll ask you, Why would you even want to take out a loan?
If you've been in business long enough to have growing pains, what have you been doing with your profits?
Would be much wiser IMO, to expand as your current business can afford to. Whether it be one piece of equipment at a time, or an extra worker, or an additional crew.
Why go in the red big time to expand, and your profits from expansion go to paying off your loan when your current business should be able not only to pay its own way but also pay for your expansion at the same time. Actual cost of expansion would be far less if you do it in house instead of paying interest with your profit.
Expanding slowly is the most sure footed way to grow.

[CCLS]

First purchase the necessary equipment needed to service your existing accounts. I would wait on further expansion until you have enough equipment and man power to service the accounts you already have.

[Phil Nilsson]

Sustainable cash flow name of the game ... and ability to control people and assets.

Phil

[BladeRunners]

Thanks for the input....

Yes we have been in business for 4 years, we also service 65 residential customers per week and 6 commercial accounts on a weekly basis. We have 4 full time employees and enough equipment to service those accounts right now. Like I said originally we have picked up more commerical accounts and need to purchace additional equipment to service these accounts.

As for what we have been doing with the profits....They go right back into the company. We have 2 crews running daily with 2 mowers in each crew.

Maybe were doing something wrong? There is not enough cash flow between payroll and daily expenses to make a large equipment purchase right now, without taking out some sort of loan.

[Rustic Goat]

Originally posted by BladeRunners
Yes we have been in business for 4 years,
There is not enough cash flow between payroll and daily expenses to make a large equipment purchase right now, without taking out some sort of loan.

I don't mean this as any type of slam and yes hind sight is 20/20.
During these four years, and as you state, profits are going back into business, there's NO money for equipment? There should always be a fund for equipment replacement or new, things break gotta replace.
Again, back to the 'profits' going back into business, ALL of your profits are/have been funneled back into business?
begin quote.................
As for what we have been doing with the profits....They go right back into the company. We have 2 crews running daily with 2 mowers in each crew.
end quote..............

Are you/have you been accounting for your business' income in terms of cost of doing business, then profits. I ask because your above statement makes it 'sound' like all of your income has been going into paying the bills, including payroll. And maybe, therein lies the problem. You HAVE TO know what your cost of doing business is, so you know what your profit is. Profit is not the same as income.

Sorry, I do not mean to even be attempting to give any accounting basics lesson, that's out of my league, that's why I hire a CPA. But something is just wrong if after 4 years, there's no money for equipment.
The concern I see is if you get a loan, buy equipment, hire crews, is there going to be a profit?

[BladeRunners]

No i won't take it as any sort of slam....

We have a CPA...and don't get me wrong we do have profit, BUT..
we don't have the kind of money needed to purchase needed equpiment. Now by needed equipment, I'm not talking about a weed trimmer or blower...I'm talking about additional trucks, snow plows, We have large snow contracts as well...

We have a appointment with our CPA next week and in the end, I am sure he will give us the much needed advise as to what is best to do.

Thanks for the input!! :-)

[justmjc]

Sorry if this comes across negative in any way but how big or small are your accounts and are you making enough on them....or are they spaced out to far? I was only wondering because it comes across to me that you have too much manpower for the amount of accounts you have. Wouldn't 1 crew or even 1 man be more than enough to handle the number you are using? I know that a buddy and myself can nail out about 32 accounts priced at about $20-$30 in a 10 hour day, spaced out here and there. We've done this a number of times. Again, sorry if it sounds negative and I don't really know your senerio. But, I do know that in my area, 1-2 man crew can definatly mow 100 residential accounts in a 40 hr week. I'm usually giving the full service at about 15-22 mins per sub divison lot by my self. And it all pretty too.

PS. About the loan, do whatever makes the most profit while maintaining control and within reason. Very important. Ex.) I am in an expansion stage right now. I needed a new rider, new truck, and an enclosed trailor. We'll say payments of roughly, $250, $250, and $100 = $600/mo (very rough). I went with a home equity line of credit on my home interest only loan (5%) at about $83/mo. Now I took that extra $ and applied that straight to principle as I saw fit. Control and cutting cost is a must. Now I have a complete setup waiting on a crew. You should have no problems securing your home because your company should be bringing in major $ anyways. And if you get into a temp. pinch, you should be able to swing $83/mo (roughly) until you get an up-swing. This is just a senerio that I use. After my cutting season is over, I usually pay of the balance anyway. It just leaves me in control at all times with money on the spot. I like to borrow other people's money to make money for me.

Mike

[Phil Nilsson]

Have your accountant prepare a ... "Source and Applications of Funds Statement" ... this shows where all incoming funds came from, how much and more importantly ... where they went. For example ... cash coming into your accounts may have come from received on account, loans, sale of equipment, contributed influxes (contributed capital) etc.etc. Changes - increases and decreases to all balance sheet accounts - assets and liabilities "reflect" the majority of these changes.

Phil

P.S. When you can afford to ... establish a "sinking fund". Put aside in cash savings enough money each year to replace aging equipment ... it's not the equivalent of fast writeoff methods of depreciation ... it's the equivalent of that amount that is depreciated from (useful life) of costly assets. Example - equip $30,000 useful life 5 years, trade-in or cash value at 5 years $5,000 ... amount to save in sinking fund each year ... $5,000 to replace equip ... OR ... you can recycle by refinancing again and incur interest costs. That's what most do. Unless you are cash "rich" you'll have to use other peoples money to grow a biz and or reinvest profits out of and away from your personal earnings. For example ... with a new car ... you no sooner finish the payments ( has 150,000 miles on it) and it's ready for the scrap heap so ... it's back to making payments again ... SO ... it's not an investment ... it's really an ongoing expense because the "thing" depreciates ... it doesn't (appreciate) such as real estate.

P.S. P.S. The P.S. was longer than the first part?

[BladeRunners]

Thanks for all the input...I really do appreciate it

I agree Mike that we could probally get by with only one crew right now. However not all our accounts are grouped together, As much as we try to group a certain bunch together for the day, there still is huge amounts of travel time spent.
I think we need to overhaul the employee situation also, we have two guys that don't know what the word 'Hustle" means. They are on the way out.

The loan thing is on hold right now anyway.

My husband and I are doing a total revamp of the company and the way it is run and the way it should be running. From employees to paperwork. This should let us be 100% sure on how much we have to spend on equipment and such

Again, I really do appreciate all the input...Thanks!!