A good industry/ business question

[AlanF]

Im looking into buying an excavator (used) and I would like to find someone to sub- contract off...so my question is if there is much opportunity for such a venture. Theres a big construction boom in my hometown and lots of development is going on. Companies are constantly expanding and purchasing new equipment so the potential is there I believe.

Ive been checking the equipment trader magazine and I can pick up a good mid sized hoe for $40-$60K (cdn).

Basically I have no experience operating a business, I have been running equipment a while and I figure I can earn more if I own my own piece of iron.

If I could hear some of your insight/experiences into the matter I would greatly apreciate it.

 

[Willis Bushogin]

I would get a feel, for what kind of work is available. Talk to companies, about doing work for them. I have a Cat 320, and its a good size machine, for doing most anything, from demolition, clearing, to digging ponds. Do alot of homework about this subject, I really dont think its a good idea, in my area. Most companies, that might need a excavator for a job, would/might rent one, so they can have their own operator, that they are familiar with. I dont mean this in a bad way, but its my thoughts. Think about the insurance that you will have to get, truck and lowboy to move the equipment, or the cost to get someone else to move it.
Good Luck, but I wouldnt want to buy anything, the way the ecomony is in my area. Payments are hard to make, when the work is slow. But if you can get lucky and fall into a job that needs your excavator, you can pay for it pretty quick, but as a contractor told me one time, why should he rent my machine, so I can make payments, when he can buy the machine, make the payments and the machine is his. I know there is, many opinions, but this is experience, that I learned from the school of hard knocks.
Good Luck again

 

[AlanF]

Average monthly rate on a rental there is about $8k, operator wage is about $26, working 5 10hour days thats about $5720 a month. Thats just under $14k a month, im sure I could offer a way better deal than that. I would be buying it cash, not financing so I wouldnt have to worry about payments.
The economy is strong, the average house price has risen over $200,000 in just under 5 years, population has increased drastically. It would be like the california of Canada, nice water, hot climate world class wineries and golf courses.

 

[AtlasRob]

new venture

Alan, as Willis says, the advise I would give is, Contacts, contacts, contacts.
You reckon the work is there. You need to get out there, shake ( not grease ) a few hands, get face to face with those contractors find out what they want / need. But dont take promises of work as guarantees of work
There is no point in buying a 20t exc and then finding a guy needs an 8t and somebody to do landscaping, and vise versa.
Get out and do the groundwork ( pun not intended ) and good luck.
Have you thought about insurances, transport, maintenance, repairs. Look at your worse case senario and how you would cope ! eg Engine blows up two weeks after you bought machine :Banghead or two weeks after the 6 months warranty expired :Banghead
Dont get me wrong. Just make sure you understand we do not live in a perfect world. :drinkup

 

[jmac]

Alan, the easiest thing you can do is running the machine, just about anybody can do that. The office part of the work is the part that takes the longest and the most work. I also would add that just one excavator and no dump truck, dozer, skid steer or backhoe and the shop to support it all will be tough, not impossible depending on the work. JMO

 

[AlanF]

I agree. I will go about this dilligently and do my research before I dive in so to speak.
My idea, to clarify, would be to find a contractor looking to expand by getting a few more pieces of equipment and operators...and work completely out of his business strictly doing his work, making him the profit.
I feel its an idea worth looking into because for an expanding company, it takes no expense off their capital by purchasing a new or used piece of machinery and hiring an operator at ~$60k a year to run it. Especially considering my average annual income is $40k a year, if they paid me and my machine $75k for the year Im $35k above my average annual income. So theres a $35k return on investment in 1 year...the machine will have paid for itself by the end of the second year and any subsequential year to follow would be 100% profit.
The company would also profit greater by operating this way, IE: they pretty much save the annual payment on the machine which goes directly to their capital. They make more, I make more..everyone is happy.

If i work out of their company, they low bed, they insure, they pay the fuel and we split the repairs.

I have no idea what it costs to finance or lease a new piece of equipment, Im sure its $10-$15K a month on a new one. So Thats at least $150k a year on the machine and operator, where I would do it for pretty much half that.

Sounds good to me I think....

 

[stretch]

I agree. I will go about this dilligently and do my research before I dive in so to speak.
My idea, to clarify, would be to find a contractor looking to expand by getting a few more pieces of equipment and operators...and work completely out of his business strictly doing his work, making him the profit.
I feel its an idea worth looking into because for an expanding company, it takes no expense off their capital by purchasing a new or used piece of machinery and hiring an operator at ~$60k a year to run it. Especially considering my average annual income is $40k a year, if they paid me and my machine $75k for the year Im $35k above my average annual income. So theres a $35k return on investment in 1 year...the machine will have paid for itself by the end of the second year and any subsequential year to follow would be 100% profit.
The company would also profit greater by operating this way, IE: they pretty much save the annual payment on the machine which goes directly to their capital. They make more, I make more..everyone is happy.

If i work out of their company, they low bed, they insure, they pay the fuel and we split the repairs.

I have no idea what it costs to finance or lease a new piece of equipment, Im sure its $10-$15K a month on a new one. So Thats at least $150k a year on the machine and operator, where I would do it for pretty much half that.

Sounds good to me I think....

Alan, there are a few smaller guys out here that own a few trucks or equipment and then work for other guys. It also gives you the oppurtunity to do a few side jobs on your own time and make a few bucks for yourself.

 

[CM1995]

I agree. I will go about this dilligently and do my research before I dive in so to speak.
My idea, to clarify, would be to find a contractor looking to expand by getting a few more pieces of equipment and operators...and work completely out of his business strictly doing his work, making him the profit.
I feel its an idea worth looking into because for an expanding company, it takes no expense off their capital by purchasing a new or used piece of machinery and hiring an operator at ~$60k a year to run it. Especially considering my average annual income is $40k a year, if they paid me and my machine $75k for the year Im $35k above my average annual income. So theres a $35k return on investment in 1 year...the machine will have paid for itself by the end of the second year and any subsequential year to follow would be 100% profit.
The company would also profit greater by operating this way, IE: they pretty much save the annual payment on the machine which goes directly to their capital. They make more, I make more..everyone is happy.

If i work out of their company, they low bed, they insure, they pay the fuel and we split the repairs.

I have no idea what it costs to finance or lease a new piece of equipment, Im sure its $10-$15K a month on a new one. So Thats at least $150k a year on the machine and operator, where I would do it for pretty much half that.

Sounds good to me I think....

Alan F, you really need to think this through.

You can make any business plan or construction project look good on paper. The problem is the reality of the market rears it's ugly head and changes all of that, regardless of how hard you work or how well your business plan was thought out. There are market forces out there that you cannot control, but they definetely control you.

This is not meant to discourage you, just MHO. Your assumption is the contractor you will be working for will have work in year 1,2,3 and so on. What happens if the work dries up?. You do have the benefit of not having a monthly payment on your machine since you are paying cash. Although you stated you would be splitting the cost of repairs, what if you had a $20K repair? You have to have the $10K in the bank to pay your half or you machine sits idle.

I am going to dissect your business plan a little further. You buy a machine for $70K and pay cash. They pay you $75K a year, you pay $35k towards your machine and take home $40K. Second year same deal. Third year you should be taking home all $75K or more depending on price increases in your services. That sounds good except for a few variables like consistency of work, frequency of break downs which you have to come out of pocket, whether or not the company you are working for decides they can buy a hoe and do it themselves cheaper or your deal changes where you have to move it, pay for fuel, etc to keep it working.

I am not meaning to discourage your business venture, just be sure and know what you are getting into. Running a business is very rewarding at times and very difficult at times. With saying that I wouldn't be anything else than a small business owner.:drinkup

 

[Willis Bushogin]

business plan

Alan F, you really need to think this through.

You can make any business plan or construction project look good on paper. The problem is the reality of the market rears it's ugly head and changes all of that, regardless of how hard you work or how well your business plan was thought out. There are market forces out there that you cannot control, but they definetely control you.

This is not meant to discourage you, just MHO. Your assumption is the contractor you will be working for will have work in year 1,2,3 and so on. What happens if the work dries up?. You do have the benefit of not having a monthly payment on your machine since you are paying cash. Although you stated you would be splitting the cost of repairs, what if you had a $20K repair? You have to have the $10K in the bank to pay your half or you machine sits idle.

I am going to dissect your business plan a little further. You buy a machine for $70K and pay cash. They pay you $75K a year, you pay $35k towards your machine and take home $40K. Second year same deal. Third year you should be taking home all $75K or more depending on price increases in your services. That sounds good except for a few variables like consistency of work, frequency of break downs which you have to come out of pocket, whether or not the company you are working for decides they can buy a hoe and do it themselves cheaper or your deal changes where you have to move it, pay for fuel, etc to keep it working.

I am not meaning to discourage your business venture, just be sure and know what you are getting into. Running a business is very rewarding at times and very difficult at times. With saying that I wouldn't be anything else than a small business owner.:drinkup

I agree whole heartly, I say this to help and not to discourage, its great to work for yourself, except in these slow times. Its hard to pay that $9800 truck insurance, $5700 workers comp, $4890 general libility ins, replace pump on excavator-$8900, rebuild engine on excavator-$9300. All this happened in 6 months. Thats a bunch of money to pay out, with work slow, Im saying this because, you need to be ready for the big repair items, they will break. I know there are companies out there that rents machines with operators, but that is not what happens in my area (most of the time) As stated by others before, why would someone rent a machine, for a long time? They can buy that same $70,000 machine, right it off on taxes and then own the machine.
Sorry to be negative, I can tell by some of your replies, that it rubs you the wrong way.
A friend of mine took his retirement pay (401 I think) and put in as a down payment on a D6 dozer. He had promise of at least a years job/work. He worked about 6 weeks and the company got kicked off the job, because of bad work performance. Of course, he lost his job/work and he lost his dozer, because he couldnt find work and make the payments. I know you are paying cash, but to me its the same thing, in the real world, the machine has to make money, whether its to you, or the bank
OK thats all the bad stuff Im going to talk about.
Its great to be your own boss, as long as you are making money
Good Luck, whatever way you go
We are here, to help you and others, do your homework and make your decision.

 

[TexClear]

Hey Alan,

I know that everyone keeps telling you to think this one through, and I completely agree. I am for sure not telling you to not do it. I think your ambition and drive is great and I wish you all the best.

I started my business pretty much just like you are planning to start yours and it was a rocky road. I had talked to several people about working for them and had several hand shake contracts in place before I bought my equipment. Once I had made the initial investment things certainly did not go as planned. Many of those hand shake contracts fell through when it came time to put a paper contract together and I was stuck with my equipment and no work. It was tough. It is possible, just be cautious when talking to contractors and make sure there is a true need for you and your machinery.

It is certainly possible to to what you are wanting to do, but I think what everyone is trying to warn you of is you need to make sure you play out all the possible things that could happen and how you will counter those situations should they arise.

Some one once told me that when starting a new business you can plan and figure, but all your planning will amount to about 10% of what you will need to know to run the business.

I know that the previous responses are probably not what you wanted to hear, but I think a lot of these guys are speaking form experience and I don't think that any of them are trying to discourage you from doing it, just trying to make you aware of the pros and cons.

Good luck to you
If you have any other questions don't hesitate to ask!

 

[EddieWalker]

Buying equipment and expecting a company to hire you to run your equipment is probably the wost reason to buy equipment. Why would they pay you enough money to make a profit when they could buy or rent the equipment themselves and have their own people do the job? The only times this will happen is when they are overwhelmed, behind schedule or can't find the equipment they need. In otherwords, when they are depserate. To me, this does not sound like steady work.

If you are going to buy equipment for jobs, then you need to be sure that you can get the jobs on your own. Being successful in any construction/building industry is not about having the tools, but in being able to sell yourself. Most of my jobs that I get are because of previous clients telling others about me. The rest of my jobs are based on my ablity to sell myself and my skills.

If you can get the jobs that you justify needing the equipment, then buying it makes sense. Before investing in your own equipment, I'd consider finding work first and renting it. Land clearing, pond building and farm/ranch improvement is always in demand. Start out there and work your way up.

Eddie

 

[AlanF]

well its like this, my grandma has an acreage with gravel and topsoil my uncle was selling....but he just sold his D8, gravel truck and the screening plant to my buddies uncle who is in business with an old family friend who was running another gravel pit but got suspended or temporarily shut down for not complying with their end of the deal with the town.
The place I grew up in had 95k ppl when I left in '04, now its up to 150k in the city center area. There were lots of excavating companies in 04, now theres way way more.
My hopes are to 'buy into' the company (i use that lightly) and help it grow and become more profitable. I will be heading down there in the next few months on vacation and will be contacting him to see what he has to say or if he has better ideas.

The objective of this is not to make huge amounts of money, its only to provide my fiance and kids with a steady stable income where we arent struggling to pay the bills. So on that note hiring me and my excavator would be way more affordable to any company than buying or renting a machine and then paying operator wage on top of that. Like I said earlier, average operator wage is about $60k a year there and I would do the job with my machine for 75k a year. If I bought a $50k hoe thats 3 1/3 years before they have invested as much as the hoe cost, where they will have made more profits annually than if they had bought it themselves and paid an operator.

 

[dayexco]

for 75k a year, i hope he is buying your fuel, and giving you a repair expense allowance? 1500 hrs a year x 6.5 gals hr. x $4 fuel (if you're lucky)....is $39k in itself. or am i misreading your post?

 

[humboldt deere]

Around here their is not any work for just an excavator o/o you have to be able to take on a complete job or a complete portion of a job. For example if you want to dig a trench for a sewer line your gonna have to install the line, do compaction and backfill and take care of testing and inspections. It is very hard to compete with only the machine because the plumbers will more than likely have a mini ex or something to dig and the other excavators will more than likely have laborers to complete installations of whatever. This just represents my area but is certainly something to think about. And good luck.:drinkup

 

[Willis Bushogin]

buying a excavator

Buying equipment and expecting a company to hire you to run your equipment is probably the wost reason to buy equipment. Why would they pay you enough money to make a profit when they could buy or rent the equipment themselves and have their own people do the job? The only times this will happen is when they are overwhelmed, behind schedule or can't find the equipment they need. In otherwords, when they are depserate. To me, this does not sound like steady work.

If you are going to buy equipment for jobs, then you need to be sure that you can get the jobs on your own. Being successful in any construction/building industry is not about having the tools, but in being able to sell yourself. Most of my jobs that I get are because of previous clients telling others about me. The rest of my jobs are based on my ablity to sell myself and my skills.

If you can get the jobs that you justify needing the equipment, then buying it makes sense. Before investing in your own equipment, I'd consider finding work first and renting it. Land clearing, pond building and farm/ranch improvement is always in demand. Start out there and work your way up.

Eddie

Sounds like my replies, I hate to keep sounding negative, but Im glad that someone else agrees with me. Im all for someone going out on their own, but when a person asks for advise, I have to give my best answer and buying a machine in hopes of renting it out, with a operator, is not a good idea, in my opinion. As someone stated before, you can do all the math you want, but there are too many possibles, that ARE going to come up. This is what people like us are sharing, but as I have found out, if a person has got it in his head, to do something, thats most likely what he will do. With that said, I wish him well and lots of Luck

 

[humboldt deere]

I bought my first mini ex when I was 22 for $6,000, no license or insurance and figured I would be working this thing all over and make nothing but $$$$. The reality turned out that I used it very little for side jobs, but I did use it alot at my job working for my dads construction company. I made $15 dollars an hour for the machine, fuel and some maintenance was paid for, so it worked out okay for me. I didnt get rich but I had fun and gained alot of experience operating. Maybe an agreement like this would work for you. You got a fulltime job plus the extra money operating when needed and you can pick up side jobs as they come along. Just don't spend to much right off the bat, you got many years to upgrade and expand. In my experience a new company tends to go in directions that you did'nt plan on or anticipate happening so soon if ever.

 

[zhkent]

AlanF,

I agree with all the reasons that people have given you to beware.

My opinion is that if you have the cash to buy a machine you should be ok.
Can you get a regular job operating for someone it you can't find work for the machine?
If you have the money to buy a machine and money to live on for a few months you might get lucky (luck is when skill and opportunity come together).
After a couple months if nothing is working hopefully you can sell the machine, probably at a bit of a loss, and get a job.
Or maybe get a job for a while and see if something for the machine opens up.

I think it would be very hard to write a detailed business plan, it's hard to predict where or who your income will come from. The more you can nail that down though the better off you will be. This simple business plan we've been talking about is not to incur dept and try to make enough to live on. And if it isn't working bail out before incurring dept and losing a lot of your savings.
Here's my last take on this, people buy $40,000 pickups that will never make a dime, I'd take a shot at starting my own business over a new pickup.