Author Topic: new vs old vehicles for small biz?  (Read 4324 times)

johnnywill08

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new vs old vehicles for small biz?
« on: February 27, 2012, 09:41:39 AM »
hi guys,

first the subject & quick details:  financing new or newer vehicles for business (i own a landscape biz).   i  have loans on 2 of 3 vehicles.   i financed them under my personal name, rather than under the biz name, because the APR's were nearly 10% less.   one was a brand new  f350 dump truck purchased for 42k @ 5.75% for 72 MO, owe 28k.  the second was a one yr old f250, financed for 31k, @ 3.5% for 72 MO owe 29k.

im very well aware that doing this for myself, outside the biz would be insane.  but i went the used route on 2 trucks when i began the biz 10 yrs ago and ran into lemons, that mechanics had claimed were fairly sound and in fairness, the problems popped out on each 6-12 months later.  they wouldn't start or break down mid route, leaving $$ on the table for work and costing fair amts for repairs which were beyond my abilities.

i simply cannot have vehicles that break down or don't start.  we service over 100 lawns wkly and 70 driveways for plowing.   late or no-shows are just not acceptable.

my question is, how would MMM or others approach the purchase of vehicles for very small businesses like mine?

thanks in advance!

Bakari

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Re: new vs old vehicles for small biz?
« Reply #1 on: February 27, 2012, 12:50:51 PM »
The majority of my income depends on my truck.

I have an F-250 which I use for deliveries, hauling, and small moves, as well as transporting tools to client sites.  Its a 1983 diesel, which I bought it for $2000 about 6 years ago.
I have since put maybe another $2000 into various upgrades and repairs ($600 on a class 4 hitch right when I bought it, the rest was split between mileage upgrades and misc repairs and maintenance).

I run it on commercially purchased bio-diesel, which is expensive, but I off-set that by getting on average 25mpg (30mpg without a load).
http://www.instructables.com/id/Vehicle-efficiency-upgrades/

Most the repairs I have done (on this and past vehicles) were technically "beyond my abilities" but I just buy the manual, check the online forums, and do it anyway.  Twice I needed an engine rebuild (past vehicles), and that really was something i couldn't do - they each cost about 2 grand, so even with that added into the purchase price, I still saved tens of thousands compared to buying new.
Even if I had to buy a whole new truck, at $2000 I could buy 20 of my truck for one 2012 model!  If each one lasted a year, I'd still come out ahead.  Sure I'd get more power, and much more comfort in the cab, but I'd get worse fuel mileage, and my old truck has done everything I have ever asked of it, and been at least as reliable as the new cars my friends have owned.

Just last week I walked out to the driveway to head to a clients house, and the truck was sitting on the rim.  I had to call the client and reschedule.   It isn't a "no-show" if you call and say you have an emergency, only if you just don't show up.
Having a newer truck wouldn't have prevented me from getting a flat tire and needing to repair it.  And new vehicles are not 100% reliable. What if there is a major car-crash on the highway?  Sometimes you can't make it on time.  I think it is a little ridiculous to say being late is unacceptable.  This is the real world.  Stuff happens.   Clients understand (at least mine do!).

Mike Key

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Re: new vs old vehicles for small biz?
« Reply #2 on: February 27, 2012, 12:56:40 PM »
I uncle owns a contracting company and like you he recently bought two new trucks, however he did it one at a time, and paid each on off within the year.

MMM

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Re: new vs old vehicles for small biz?
« Reply #3 on: February 28, 2012, 10:30:41 PM »
Hey Johnnywill!

Congrats on your landscaping business, it sounds like fun.

In your case, I think I'd take a balanced approach. I wouldn't drive a 1983 like Bakari, unless you have a more laid-back and freestyle job like he does (and I do).

I do see a certain benefit from the peace of mind of moderately new vehicles. And I wouldn't want you to get distracted by having 50% of your truck fleet go down on a summer day. Plus, having trucks that aren't TOO old allows you to look a bit less poor to your landscaping clients, who are probably somewhat more image-conscious than their mustachian counterparts.

But to buy NEW pickup trucks for $30-40k? That is definitely craziness. The depreciation on those vehicles is very fast, so you are paying a HUGE premium just for those first three years.

If you make a point of buying trucks that are 5-15 years old, with lower than average mileage, and then just drive them gently and keep up with the scheduled maintenance, you should NOT have any significant reliability problems.

Right now, you are losing $15,000 per year in depreciation and finance charges on those trucks. You will definitely not spend anywhere close to that amount on repairs or missed jobs by running trucks that are 5-15 years old!

Also be sure to actually research which models are most reliable, using Edmunds.com or the lemon-aid guide. I think Fords are one of the better ones, but I'm not totally sure.  And do your buying and selling from Craigslist, rather than a dealer - it's worth the extra effort.

Bakari

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Re: new vs old vehicles for small biz?
« Reply #4 on: February 29, 2012, 03:52:00 PM »
yeah... I should have mentioned that... even I think my own case is on the extreme side!  It was just meant to be an example.

However, I gotta mention:  my mom bought a brand new Scion (Toyota) around the same time I bought my truck (though she paid cash for it).
It has had to spend many more days in the shop than my truck has.  I think she has brought it in to the dealer for check engine lights and other little things at least 4 or 5 times, while the most trouble mine ever had was I had to replace the starter once (a 20 min DIY job).
So, in addition to new cars being equally susceptible to flat tires and dead batteries, I still question how much bearing buying new(ish) has on reliability.
« Last Edit: March 01, 2012, 11:09:42 AM by Bakari »

johnnywill08

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Re: new vs old vehicles for small biz?
« Reply #5 on: March 14, 2012, 05:07:09 AM »
hi guys,

sorry it took me awhile to get back long enough for a reply....  thanks for taking the time to respond. 

bakari, i would love to go the route you talk about, but like you said, it is one extreme....   that said, it sounds like it is totally do-abe for our biz and business model, where a day or two delay isn't the ened fo the world for what i would imagine are not necessarily, wkly or semi regular customers.  sounds like more of an occasional, at most, type service.  for me, we're there every week, and if i'm giving apologies and missing jobs 4-5 times out of the projected 32 week maintenance season, it deeply hurts my reliability & credibility and my bottom line as that represents 10-20% of my season, aka the profit....

i do have to mention my "insanity factor"  which is to say that, having several "bleepbox" trucks, one which cost 20k (financed), so not all unexpensive, and having each reach, in relatively short periods of time, a level of unpredictability.   i just basically had to factor in to my cost of doing business a pretty much new truck, financed as cheaply as i could get it.  when i talk about my "insanity factor" i mean, i would literally tense up each morning going to start these trucks with 3-5 standing around seeing if we'd be working that day-it really sucked.

one truck got to the point where, for a calendar year, it averaged 350/400 month in repairs.  that's way more than the $100/mo i spend in interest on my  most expensive truck/loan and it actually ran me more in real dollars that year than a brand new dump truck. 

we have 115 lawns to service every week and one of the things i really push when it comes to "branding " my service is our reliability and dependability, simply because that's not excessively common in contractors today.  customers have literally said they could set their watches by when my mow crews come by.  that makes me feel pretty good.

now with the new vehicles (and you guys will probably slap the sh!t out of me for this) with doubled up warranties to 6 years, also stupidly financed  ( i know, i an a$$head), i sleep at night knowing my trucks will run in the morning and if they don't, i won't be paying for the repairs.

factor in that the fords really do a very good job retaining resale value here around boston, and i know i could do better, but my business now runs as smoothly as possible with trucks and equipment that start and run ALL the time, or as close as you can getin this biz.

some other factors to consider:  around here, having the better image shiny new trucks and equipment provide absolutely adds an air of professionalism and credibility.  i know this may draw some guffaws, but it's true.  MMM touched on this....  let's face it, these are people who MUST have highly maintained landscapes to preserve their own images.   i do remember as a kid (i'm 37) NOBODY in middle class neighborhoods had landscapers. now, it's half our clientele at least.   with 2 jobs/3kids they don't have the time to cut their own lawns, they think.  this affects how much we can charge and the "quality" of neighborhoods we can work in...

after doing this for awhile and listening to you guys, i think the approach that really works for me is to buy trucks 2-5 yrs old, again w/ lower than average miles.  the first 2 yrs is really when the majority of depreciation takes place.  it gets incrementally more negligible after that for fords. 

now, this is likely another topic, but my brother in law (also a landscaper) recently switched to dodge rams, 2500 series pickups, which are 1/3 better on gas and significantly cheaper up front, but don't hold their resale like fords.  that's a whole other factor to consider....  (sorry, better keep my mouth shut or open a a new topic:) 

thanks again guys and i welcome you to shoot holes in my logic, or lack thereof. save me a buck and you'll be my heroes!



Bakari

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Re: new vs old vehicles for small biz?
« Reply #6 on: March 14, 2012, 09:22:16 AM »
i would literally tense up each morning going to start these trucks with 3-5 standing around seeing if we'd be working that day-it really sucked.

one truck got to the point where, for a calendar year, it averaged 350/400 month in repairs.

Given that experience, I can understand the desire to buy new, with a warranty.
Maybe you have just been unlucky, or I have been particularly lucky, I just haven't had that kind of problem with any used vehicles I've owned (as long as I took care of them).

And having shiny trucks for image is understandable to.  No gaffaws from me. 

I think you summed up the reasonable compromise yourself - newish used trucks.
As far as brand and specific age, I'd suggest using Consumer Reports reliability guide (or something similar) and use that as a prime factor.
Resale and depreciation only matter if you are intending to sell.  When/if you do sell, though, how well it runs will out weigh other factors.

Incidentally, I have 95% repeat and referral business, and my clients expect me to be there when I say I will.  The flat tire I had last month was the first time I had to completely reschedule because of vehicle issues (that I can recall) in over 5 years.  Before that I have had to call to say I'll be late because of a dead battery or heavy traffic or something else unexpected, and I once rescheduled due to illness.  If my truck wouldn't start 5 out of 32 times, I would definitely be upgrading to something more reliable!!!
My point was just that there is nothing you can do that will guarantee that nothing will ever happen, and that somethings, like flat tires and dead batteries, are equally likely to happen to new or old vehicles.

BenDarDunDat

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Re: new vs old vehicles for small biz?
« Reply #7 on: March 14, 2012, 09:31:46 AM »
hi guys,

that said, it sounds like it is totally do-abe for our biz and business model, where a day or two delay isn't the ened fo the world for what i would imagine are not necessarily, wkly or semi regular customers.  sounds like more of an occasional, at most, type service.  for me, we're there every week, and if i'm giving apologies and missing jobs 4-5 times out of the projected 32 week

When your truck doesn't roll, you are paying guys to stand around and do nothing.  In addition, you may be getting paid a bit more on these contracts for how professional your people and trucks look.  Lastly, you can book jobs and work more efficiently knowing that you aren't going to have transportation problems.  If your business model supports the $500 each month in truck payment for a crew, then I wouldn't lose any sleep over it.

The Money Monk

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Re: new vs old vehicles for small biz?
« Reply #8 on: March 20, 2012, 09:19:33 AM »

Right now, you are losing $15,000 per year in depreciation and finance charges on those trucks. You will definitely not spend anywhere close to that amount on repairs or missed jobs by running trucks that are 5-15 years old!



BAM. That's it right there.

You could look into making a deal with a local company that rents similar trucks, to rent in an emergency. If you could be back on the road with a rental like an hour after finding out that a truck was broken, that wouldn't be so bad.

The bottom line is, you ARE using a used truck anyway. You're truck isn't new, and you are trusting it now.

even buying vehicles a year or two old is so much cheaper.

johnnywill08

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Re: new vs old vehicles for small biz?
« Reply #9 on: March 31, 2012, 07:21:24 PM »
hi guys, been awhile since i got back n here.

being a landscaper, you can imagine i'm getting busy now.

i just wanted to say thanks for all the replies.   taking the time like you all did, especially since i got such a varied response, has really helped me kinda crystallize where i want to be on the next purchase.... i took a little bit  of what everyone said and that's really my "sweet spot" of where i wanna be.


you guys are pretty cool chiming in.

here's an interesting follow up though: considering what i've told you guys, would you sell the vehicles (i'm right side up on them, loan-wise) f350 gets 6 MPG and monthly pymt is $700, f250 gets 11 mpg and pymt is $488.....

thanks

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Re: new vs old vehicles for small biz?
« Reply #10 on: March 31, 2012, 09:51:30 PM »
I would sell them. Based upon your mileage, does your F350 have the 6.8 v10 and the F250 have the 5.4 v8 (I know of a GM 454 service truck averaging 8 mpg loaded)?  You could most likely sell them, and barring financing issues, purchase 3 used, but perfectly usable F250/F350 from either the 1992-1997 model range or 1999+ range. I say, three to give you a backup vehicle. If you do go the older route and go diesel, if you find a 6.0L diesel make sure you have someone check the problem areas (head bolts, turbo, oil cooler).  Depending upon where you live you should pickup a free car mag called Auto&RV and check out their Trucks & Vans and Med. & Heavy truck section.

jawisco

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Re: new vs old vehicles for small biz?
« Reply #11 on: April 01, 2012, 01:16:31 PM »
I have a small business that needs dependable trucks.  I put on about 40-50k year, and since I go all over the midwest with a crew, breakdowns are expensive (around $1000/day).  I have had great luck with Ford F-350s with the 7.3l engine (95-2003).  They get good mileage (16mpg just the truck and 11mpg pulling 7Klb trailer).

My advice would be to keep your trucks through this season and make a change to less expensive older trucks in your offseason.  It would be a good idea to have (3) trucks total so that you always have a spare and don't have time pressures if a vehicle needs some work (not having this time pressure can save you a lot of $ since you can do some work in house/shop for parts/etc). 

I would purchase (3) trucks from the same model cycle (Ford F-350s from 99-2003 with 7.3 motor would be ideal in my mind).  Purchase trucks that are rust free because appearance does matter.  You can find these for around $10-12K.  Don't let mileage scare you, but get them checked out before buying. 

Then implement a few practices going forward :

 (1) find a handy guy on your crew and have him go over each truck weekly with a quick checklist.  90% of things that cause breakdowns can be found/anticipated with a good look over (for leaking fluids, torn belts, loose things,etc).  This kind of thing can also save you $$ on repairs because things don't need to break before getting attention.  Good weekly going over should take about 1 hour for (3) trucks.

(2) find a mechanic who understands "fleet" service.  Most mechanics are only used to seeing a vehicle when it is broken - a "fleet" mechanic will realize your business situation of down time being a really bad thing and will look for issues and fix them before they cause you down time or grief.  This will cost you a little more for this type of service, but way less than you are currently paying for vehicles.

I have had great luck with this system and found it to be a very economical way to have dependable vehicles that don't let you down.  Sounds like you had some bad luck out of the gate with used vehicles - don't let that scare you off.  Good luck.

Jason