Debt to profit ratios

I almost threw up when I had to take a truck loan last year (never had a vehicle loan before - but truck was dying and I just paid for a new barn). 5 year loan, I'll pay it off early.
 
My take:

Credit and financing is just another tool like a chainsaw. Use it wrong, it will hurt you. Use it responsibly and it can help your speed and effeciency.

We try really hard to only have one piece of equipment financed at a time. Sometimes without the equipment, you end up paying for it in labor due to lack of effeciency.

There's no magic numbers. Just do whatever you are comfortable with. Don't get in over your head. One thing Ive done in the past is run the numbers on what the monthly payment would be. Put that back every month for a year or two to see if you have any trouble paying it. Theres no stress with it if for some reason it doesnt work out. Theoretically with the new equipment, you should be more profitable so making the payment would be easier. When it comes time to actually buy it, you have a nice down payment and as a result a lower monthly.
 
I keep profits in the business very low, it’s less to tax. As far as loans I’m on my third private loan, not because I can’t get a loan from the bank. I just rather know where my interest money is going and rather it spent for the better.
My loan strategy has always been to max out the terms and pay it off early. Typical payments are about 150%-200% and this gives me the flexibility for slow times to make low monthly payments for a rainy day/month. So my new chipper paid for in October, is just about half paid off, but on a 5 year term.
One loan at a time.
I also have a business CC at a very good interest rate and a line of credit that helps with cash flow.
I also do one loan at a time
 
I'm guessing me.


I don't really want anything much. I'm pretty outfitted.


A dump trailer, maybe, but I have a dump truck with an 11' forestry body that I hardly use. I almost never haul chips. I'm typically short on chips for personal use.

Sawmill, but my other neighbor has one for-hire, inexpensively. He can unload logs with his equipment if they are on a trailer instead of my dump truck.

My neighbor, who owes me favors has a real log-loader and a 20' car trailer. He comes and picks up mill or firewood logs.

Other friend has an F800 with a strong kboom, capable of carrying 20' logs.

All three of them will age-out in time, 68-75 years old.




I'd consider a smaller 4x4 open-bed dump truck or 4x4 pick-up. Rarely do I have use for 4x4 in my market. If I didn't have a mini that moves my chipper and trailers, I would have a bit more use. The occasional snow storm happens.
I'd rather have an extended-cab than crew cab, maybe a 6' bed instead of an 8' bed.


Either a smaller chipper or larger chipper, maybe, as a compliment to the one I have.
 
Check your Pm's there is a good looking 6" bandit (no frills)..

I'd be hesitant to buy a saw mill, unless you are just going to use it for a little while and sell it after the project. Or use it for a part/full time gig to make $. they are expensive and will take a while to pay for themselves for just hobby use.

I think a dump trailer is my next purchase, or if I ever get time to modify my dump insert to take on and off a trailer. It's a good compliment to a mini, and a valid alternative to a dump.

I'm in love with machine feeding my new chipper. As long as I'm careful the new 12xpc is good enough for occasional machine feeding, but it isn't as maneuverable off road with the mini as I was hoping... Lots of plywood, trips, and very glad I didn't sell my gravely.

Been running 1.5 crew lately, so I line out the guys, run off and do some simple solo work with the pickup/dump insert and lil chipper.

It wouldn't be impossible to get a flatbed truck, slap the mini on that after pushing/winching the small chipper onto a dump trailer either! Super micro rig, and that will certainly be my next purchase, and a bonus if it has a mounted 185 cfm compressor.
 
Serf Life said:
@Sfoppema you have any business debt math from school?
Click to expand...
If there is a formula or suggested ratio I am unfamiliar with it. All I can say on the matter from my own experience is that once I started borrowing money for new equipment, I started making more money. If you have the revenue and cashflow to make the payments, and reason to believe that a new piece of equipment will make your life easier, more efficient, and or more profitable then in my mind it is a sensible move. I have definitely gotten a better return for the amount paid out to employees with newer equipment. Less down time, more productivity...

I'm on the high side of whatever that ratio is as I started financing the merlo this December.... on top of my 18xp and DW1050. Between the three I'm about 8,000 (6000 for the merlo...) per month. I ran the numbers and have very modest expectations for my 2022. I have a number I can bear, a number I'm happy with, and a number I'm shooting for. In my case, I was willing to take the risk as I had spent so much time speculating on it... Won't know until I've tried. So far we only use the Merlo about 30% percent of the time. It's a bit hard to justify the amount of money I am spending on it if I am being completely honest. I've got good equity in it, though. It definitely shines when we do use it. Seems to be working out, but time will tell. I'm not married to it, but I plan to keep it at least a few years just to see how it plays out.

The new chipper and DW are very easy to justify the loan for IMO. I use them both pretty much 5 days a week. Only about 2000 per month for both in my particular case. Very easy to make the payments and huge productivity/efficiency boosters.

A wise man once gave me some simple advice that I have mostly obeyed. "If you don't use it more than 50% percent of the time - rent it".

Southsound it sound like you have a very good friend/neighbor in the log loader owner who owes favors. Very good friend to have!
 
Sfoppema said:
If there is a formula or suggested ratio I am unfamiliar with it. All I can say on the matter from my own experience is that once I started borrowing money for new equipment, I started making more money. If you have the revenue and cashflow to make the payments, and reason to believe that a new piece of equipment will make your life easier, more efficient, and or more profitable then in my mind it is a sensible move. I have definitely gotten a better return for the amount paid out to employees with newer equipment. Less down time, more productivity...

I'm on the high side of whatever that ratio is as I started financing the merlo this December.... on top of my 18xp and DW1050. Between the three I'm about 8,000 (6000 for the merlo...) per month. I ran the numbers and have very modest expectations for my 2022. I have a number I can bear, a number I'm happy with, and a number I'm shooting for. In my case, I was willing to take the risk as I had spent so much time speculating on it... Won't know until I've tried. So far we only use the Merlo about 30% percent of the time. It's a bit hard to justify the amount of money I am spending on it if I am being completely honest. I've got good equity in it, though. It definitely shines when we do use it. Seems to be working out, but time will tell. I'm not married to it, but I plan to keep it at least a few years just to see how it plays out.

The new chipper and DW are very easy to justify the loan for IMO. I use them both pretty much 5 days a week. Only about 2000 per month for both in my particular case. Very easy to make the payments and huge productivity/efficiency boosters.

A wise man once gave me some simple advice that I have mostly obeyed. "If you don't use it more than 50% percent of the time - rent it".

Southsound it sound like you have a very good friend/neighbor in the log loader owner who owes favors. Very good friend to have!
Click to expand...
The 3 loans I have are 5 yr or less. DW almost paid for and 3 years left for Bandit.
 
First piece of equipment I invested in was a dump trailer. You don't need a huge one either. Depending what is in your area, you might be able to find a good one new or used for 3k-5k, give or take depending if you want to go a little bigger. Obviously if you go real big it can get up there in price. But really if you just add some sides that can make a smaller trailer large. Just got to consider what you will be hauling to take into consideration the weight it can handle. The dump trailer was the best investment I ever made. Sometime we chip into it, and sometimes we just load brush into it whole.

Right now the only loan I have is on a truck. I consider myself a smaller operation focused mainly on pruning, some smaller-medium sized removals here and there. I have thought a lot about expansion and what equipment I may want to invest in though. Mini, lift, maybe a bigger chipper...or even take the route of going real big and getting more involved with the large tree removal side of tree work..

I have a lot to think about.

I think both a smaller operation or a larger operation can be rewarding and profitable. All depends what kind of business you want to build.
 
Last edited:
Since I was always a better arborist than businessman I didn't understand how depreciation can be a moneymaker until it was explained to me by my accountant. He helped me work out the money flow to optimize depreciation. When it comes together its almost like a gift!

Tax laws change so its too hard to know how much depreciation can help in the scheme of things.
 
I'm looking at a $10-12K dump trailer. 10K or larger, derated.

I'll keep it for the rest of my working life.






The sawmill I'd be considering, and that is available in a few months or less, not a year or more, would be maybe $8k, if trailer mounted.

Probably better to just use my neighbor for milling, but quality is sometimes an issue.

The miller is Brother Lennie and the log-loader owner is Brother Charlie, two old boys who grew up right here, on the old farm, where I have a 1.75 acre piece.

Here's why Charlie owes me a favor or two, beside me getting him and cutting him firewood (his shoulders are shot at nearly 70, and only runs his Dewalt electric chainsaw ---with at least the throttle interlock disabled, of course, maybe the chainbrake, too).
I've gotten one Lombardi this size down already, and the cracked one is down to one leader and stable until I get back to it. I wanted to fell the final leader, but the thing is a thin, thin rind of wood with ganoderma-munched pulp inside. The third one has to go, too.
 
6" round fence posts.
 

Attachments

  • 20220524_145515.jpg
    20220524_145515.jpg
    309.3 KB · Views: 14
  • 20220516_135158.jpg
    20220516_135158.jpg
    1.9 MB · Views: 13
  • 20220522_160132.jpg
    20220522_160132.jpg
    1.2 MB · Views: 13
  • 20220524_161415.jpg
    20220524_161415.jpg
    1.3 MB · Views: 12
  • 20220522_160146.jpg
    20220522_160146.jpg
    1.3 MB · Views: 14
I don't know that I have any specific advice or numbers as far as the original question, just my experience and mindset.

But I was lucky enough to have family help to cover my chipper when I first started out which was HUGE to get the ball rolling, however my truck (2001 F350) and tools I paid for myself with cash from the beginning, so I started 100% debt free. I'm a small operation with somewhat limited use for equipment in my area, so that really helps me keep major purchases to a minimum. Recently, I put down a deposit on a brand new Bandit 12" with a winch which I'll finance about half of to keep cash on hand and keep payments somewhat small. For me, cash flow is good and expenses are low, so I'd rather save up (at least partially) for big down payments and retain my emergency cash reserves. I'm also using this same strategy to develop my new(ish) property and build my shop to run the business out of.

That said, I think it is so individualistic to each business and each market; everyone needs to decide what is comfortable for them and what works for their business model. My business can't run without me being there 100% of the time, so I can't just rely on employees keeping the ship on course, which is why I keep good cash reserves to be used both for large expenses or time off. That said and was mentioned by someone a few posts up, when implemented responsibly, credit/payments are a VERY useful tool when used in the right way, and ought to make you MORE efficient and profitable.
 
Last edited:
You must log in or register to reply here.

New threads New posts

Back
Top Bottom