By Dan Gundacker
Temperatures are dropping across the country, signifying that the mowing season is slowly coming to an end for many professional landscape contractors. While snow and ice may be top of mind, many landscapers are already beginning to think about 2018 and how to prepare their fleet for spring jobs.
As landscapers evaluate their fleets, they may determine that it is time to replace or add new machines. When beginning the machine acquisition process, it is important for landscapers to consider one of the most important factors — how they will purchase their new machine. This is where you, the dealer, come in.
When adding a new piece of equipment, landscapers need to determine which payment method is best for their business. With several options available, from paying in cash to spreading payments over time through a lease or an installment loan, landscapers should consider the pros and cons of each option prior to signing on the dotted line.
For many professional landscape contractors, financing is the most appealing option, as it lets them sustain cash flow over time. With a financing plan, landscapers spread payments over a longer period of time, so they are able to generate revenue as they pay down the balance, unlike paying in cash, which requires the money upfront.
When selecting a financing solution, landscapers typically have three options: leasing, installment loans or revolving loans. Each option has unique benefits that may appeal to landscape contractors.
An operating lease is a long-term agreement where a landscaper agrees to pay a fixed amount over a predetermined amount of time, often two- to three-year terms. Similar to an automotive lease, once the operating lease is up, a landscaper can either exercise the purchase option and buy the machine outright, or return it to the dealer. Based on the terms of the operating lease, payments are usually lower than an installment loan of the same term, which improves cash flow for the landscaper.
An operating lease can be appealing because it allows landscapers to switch equipment every two to three years — ensuring fleets have new machines. New equipment is a reassurance of dependability and eliminates the risk of downtime. Even better, because many dealers can match a lease term to a warranty period, landscapers can work with their dealer to ensure machines are under warranty throughout the length of the lease.
While leases have a lot of benefits, there are restrictions with leases that landscapers should consider. For example, landscapers are often limited to a maximum number of usage hours on the machine. Once that number is exceeded, the landscaper will face penalties when returning it. Additionally, because the landscaper does not own the piece of equipment, any damage to the machine will lower the value of the machine, impacting the landscaper’s options at the end of the lease term.
Some manufacturers offer other benefits to landscapers who choose to finance through an operating lease. For example, John Deere customers have access to Hour Forgiveness, Damage Waiver and Rollover Hours at the end of the lease if they lease another commercial mowing unit.
Loans are similar to leases in that they allow the landscaper to spread out payments across multiple years, unlike operating leases, where at the end of the term, the landscaper owns the machine. This may be preferred because the landscaper is not limited to usage hours or concerned about damage, which may impact the value at the end of the term. If a landscaper anticipates very high hour usage will be required, a loan may be a better solution.
A revolving credit account is best for smaller purchases like parts, service and handheld equipment. With a revolving loan, landscapers have a credit account, where they can add parts, attachments and other optional components, which they pay off on a regular basis. This option isn’t ideal for large equipment purchases, such as a mower, but it can be the ideal solution for larger landscaping operations with multiple crews, enabling convenient multiple purchases each month at your dealership.
When evaluating options, dealers should work with their landscapers to select the right financing solution for their business. Most manufacturers offer their own financing, or have relationships with lenders, allowing them to help streamline the process. Landscapers should work with their dealer or lender to identify any special offers, such as zero-percent interest for a specific amount of time, which will help to save additional money. A lender may be able to create a program that lowers payments in the offseason when business is slower and cash flow may be tight.
Ask landscapers the following questions to figure out which option is best for their business:
- How long will the machine be needed?
- Is the goal to own the machine or operate it for the lowest overall cost?
- Is it important to have the latest and greatest machine available?
- Is there a financial benefit for their company to leasing vs. owning? (Quote both for them and have them review with their tax/financial advisor.)
Based on the answers to those questions, you can help landscapers identify which solution is best for their business, and create a personalized program tailored to their needs.
As you speak with landscapers about financing, keep in mind other business needs, such as parts, handheld equipment, attachments, and even routine maintenance. They may benefit from a revolving account for these purchases.
Once the best financing solution has been determined and a quote is generated, dealers should work with their lender to set up a payment plan. Keep in mind that payment plans are often flexible, and can be tailored to align with the landscaper’s business seasonality. For example, landscapers may want to select a payment date that coincides with other monthly bills. It is also wise for landscapers to review their financial records and look for any patterns in cash flow. If there are times throughout the year where cash flow is slower, a lender may be able to offer to skip or set seasonal payments. While longer-term notes and leases with lower monthly payments may be appealing, they may lead to larger costs down the road, particularly if the warranty ends. John Deere offers NeverStop Services and Support, a program that bundles the equipment, financing & leasing, loaner, fleet discounts, parts and more into one finance or lease package.
With winter right around the corner, landscapers should take time to re-evaluate their businesses, considering any necessary acquisitions prior to business picking up again. While financing may seem complex, there are many advantages to business owners. It is important for dealers to help landscapers evaluate their business, as well as understand their equipment needs, cash flow, and financial history, all of which will help the landscaper select the right solution. Most importantly, dealers should remember that they are a great resource for landscapers, and can help them navigate the purchasing process from start to finish. By offering financing, dealers enable landscapers to set up their business for a productive and profitable season.
Dan Gundacker is a tactical marketing planner at John Deere Financial. He has worked for John Deere for 38 years, primarily with the Turf & Utility equipment division. For the past 13 years, he has worked with John Deere Financial, specifically on the marketing and development of finance for the Turf & Utility equipment division.