Earning Money From Your Equipment Investment
In today’s working environment, with every potential customer appearing to chase the lowest possible price for their project, there are always those clients who are more selective in their choice of company, preferring to opt for a firm that sets out their offer in a clear and concise manner, with full disclosure and adherence to those regulations they have discovered whilst browsing the internet (often through having their fingers burnt on a previous occasion) and are determined to commission a company that offers that openness in preference to the lowest price.
They are aware of the Construction (Design Management) Regulations and demand full disclosure of the pricing logic used by a potential contractor whilst fully appreciating the need for that firm to make a profit in order to survive. How far you take that openness can be a matter for your company policy. Sometimes, the simplest of apparent sound working practices can appeal to a customer as they can understand the reasoning and logic behind them.
For example, every hard landscaping company has a number of tools and items of equipment, often more than one type, size, weight or suited to various applications e.g. track laying or wheeled, fossil fuel powered, or using mains electricity or battery packs.
The cost of purchasing and storing these tools can mean a major financial outlay, even when spread over several years. Maintenance, storage, spares and insurance costs should be added when making any valuation of your collection. Equipment wears out and replacements are required. Many firms will simply buy new, without any thought of the financial opportunities to purchase through capital expenditure, maximising the benefits allowed under taxation rules regarding offsetting costs against tax over a period of years. These matters are often left to accountants to evaluate at the end of the year retrospectively.
When assessing the costs involved in a landscaping project – pricing the job – a lump sum figure may be included to cover the cost of any tools and equipment, often without taking the full or actual cost in terms of money to the company into scrutinised consideration. Simply allowing £500.00 for plant hire per week for an excavator, dumper, disc cutter etc on a generalised ‘rough assessment’ basis does not necessarily cover the true cost to the business.
Consider instead, hiring out your own tools and equipment, using your local hire company prices as a guide, and charge them to a project, using a properly audited, evaluated system or scale of rates. You will have to accurately assess the type of machine you require, and length of time you estimate the job will take, then create a worksheet with all of those figures clearly laid out (which will allow you to reassess your calculations and add any ‘missing’ items prior to finalising your tender.)
Don’t forget to add ‘consumables’ such as diamond blades, fuel costs, transport (if required), and arrive at a figure. The cost of repairs and cleaning should be taken into consideration when creating your hire price list, together with an allowance for wear and tear (at new replacement values, not purchase price).
Make a note of each item, their manufacturers name and identification number and any other marking peculiar to that machine, together with a photograph of the actual piece. (This is useful for any losses through fire or theft at any time, and serves as a record of values at any future inventory for financial reasons)
You may be amazed at the true cost of supplying tools and equipment on a project. This exercise alone will help your profit margins!
Creating the Image
I suggest that you have some waterproof stickers created, much as a tool hire company, and fix one on each piece of equipment. Consider too, a painted panel in your own chosen colour on each item, making them appear as close as possible to normal hired in tools. The legend on the label to match your company name and details.
When pricing a project, adding in the (truer) cost of any equipment, allow a global figure to the project against the likely duration of the works. This avoids having to explain or justify the price to a client. However, you should add a note in your Terms & Conditions to the effect that you are using hired-in tools and equipment. This clause or note will be required if, at a later stage, the project overruns through no fault of your company. It acts as a Sunset Clause, incurring additional charges for extra hire time for your tools.
In the event of a hold-up in the timely progress of a project caused by client alterations, (which should be the subject of Variation Orders under your standard Ts & Cs) you will be able to make a charge against any additional hire time (much as a scaffold company).
By adopting a ‘hire’ scheme for your tools and equipment, in the event of a site close-down due to client insolvency, and the bailiffs or administrators do not allow you into the site during their evaluation, you will be able to gain access and recover your tools, as they are legally bound to mitigate costs, and your weekly fees will ensure that you can retrieve them as the charges will continue until you can.
If your company is large enough, why not consider going a step further with this suggestion, by creating a separate limited company, set up specifically to hire out tools to your parent company?
