When you realize you have a major purchase in your future, it can be one of those fork-in-the-road moments. Should you spend the money to buy what you know your company needs and take it to the next level?
Anyone who owns a construction business may run into those decisions fairly routinely. If you're eyeing a big purchase you think could help your business grow, here are three factors to keep in mind.
Your company may need the equipment to evolve.
In 1984, Brian Furey launched Falcon Industries, a custom home builder in Brick, New Jersey. For decades, Falcon Industries had a certain way of doing business. For instance, Furey often needed to contract out someone to haul away his garbage.
"With construction, the main generator, besides the end project, is garbage," Furey says. For most homes, he would budget about $25,000 to hire subcontractors to haul debris away from his construction sites.
But after Hurricane Sandy in 2012, construction companies in the area were in demand like never before. Furey was plenty busy, but so were his subcontractors.
Before the storm, Furey says, "it was a slower pace. Everybody was available and working. But afterward, you'd call someone, and they'd say, 'I don't care how badly you need me. I can't get there no matter how much you pay me.'"
Furey concluded that he needed to start buying equipment to do some of the hauling away himself. "It's much easier for me to work on my own timeline instead of depending on the timeline of other subcontractors," he explains.
So from January to June 2013, Falcon Industries purchased a hook lift truck for $54,000. Containers for debris were about $7,500. The excavator was $12,000. The articulating manlift was $34,000. And the bobcat was $24,000. He took out a loan with a truck lending company for the hook lift truck; everything else, the company paid for outright.
"I was a little reticent in the beginning," Furey admits, but he felt that his company had little choice.
"We were in a situation where we either had to grow or be eliminated," he says. Furey's company now has 24 full-time employees, two part-timers and many subcontractors, and builds three more homes a year than it used to. Furey has also found that he can use the equipment not just for hauling away debris, but for homebuilding as well.
"You have to evaluate what your costs are and factor in how what you're purchasing will work out over a one- to two-year period of time," Furey says of buying expensive equipment.
"You can't be too overly optimistic," he cautions. "It's a matter of trying to make more money but also to make your whole process work smoother, which in return can make you more money."
Your company may need equipment to make your business run better.
Sometimes the internal part of a business can swallow up the rest of the business, if one isn't careful.
Larry Overley, president of Aurora, Colorado-based Landtech Contractors, has over 200 employees. Some of them are seasonal, but they're all considered full time.
"I needed a better way to keep track of individuals' labor hours," says Overley. "We researched for six months to find the right software that would eliminate paper time sheets."
Last year, he found what he was looking for: an electronic data collection system that cost $30,000.
Overley wasn't unaccustomed to making big purchases. Last year, Landtech also bought a $50,000 mower for the maintenance department. Two years ago, the company spent $60,000 on an estimating, accounting and project management platform to bring all those integrated operations under one umbrella.
The results have been terrific, Overley claims. "The data collection system not only tracks the hours worked but the location of the employee during those working hours," he says.
The software, he adds, has eliminated three days of inputting manual data entry during each pay period. It has also increased productivity for each job, "because every employee can now clock in from an app on their phone," he says.
Overley points out that now he knows in real time how many employee hours are invested in a project, which allows him to react immediately before the job goes over budget and make better allocation decisions in real time. That $30,000 software also bolstered security and accuracy in the company, Overley claims.
"Each employee has an individual pin associated with their phone number, so no one can clock in for someone else," he says.
Maybe your subcontractor needs to make the big purchase.
You're often as strong as the team around you, and it may be that your company can grow bigger without spending a dime.
Andy Stauffer, owner of Stauffer and Sons Construction, a custom home builder in Colorado Springs, Colorado, hasn't had to make a big purchase lately, but he has advised subcontractors to buy expensive equipment. Doing so helped his subcontractors as well as his own business.
"Our concrete foundation subcontractor had been in the foundation business for 20-plus years and was doing everything old-school with snapping chalk lines," Stauffer says.
A few years ago, Stauffer told him, "We're getting quotes from guys who are cheaper than you. We want to keep using you, but they've got better equipment and you're lagging behind."
The subcontractor bought a piece of laser equipment for $45,000, allowing him to do his job faster and better, Stauffer claims.
"He had to finance it over two years, and it was a huge cost for his business, but he needed to buy it in order to stay in business, and he's so glad he did," Stauffer says.
Stauffer also helped a former employee who decided to strike out on his own to create a timber framing business in 2003. He became a subcontractor for Stauffer, and together, they bid on a home, contingent on the subcontractor buying a $15,000 portable sawmill.
They won the project, and, in the last 13 years, Stauffer has sent the former staff member over $200,000 in business—"all because of his initial purchase of the sawmill," Stauffer says, adding that the purchase helped his company as well. "We couldn't have landed those jobs without it."
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