How to Finance Your Landscaping Business

Hey everyone, this is Mike Andes and you're listening to episode 17 of the Landscape businesscourse.com podcast. If you haven't already, make sure you check out the website. And every single week on Thursdays we have a webinar where you can join live. And I talk about some of the marketing methods that we're using right now, as well as the five things that keep your small business small. So make sure you do that. And then at the end I do Q and A and can answer all of your questions about how to start growing, save your landscaping business. So today we're talking about financing your landscaping business and kind of the three major ways of doing that. There's a myriad of ways to finance a startup, finance a business as it scales and grows, and there's all sorts of options. But we're going to talk about the three major ones and I'll describe kind of my experience with each one. So the first one is bootstrapping. And that really has to do with using your, your own cash, your own savings you might pull out of retirement or out of a heloc, like a home equity line of credit, or use some form of your own assets or cash to create start the business, grow the business and expand. And it might even I kind of throw into this class, I even throw credit cards, your current credit stuff you already have. Essentially bootstrapping, in my opinion, is anything where you don't have to turn to a business oriented loan from a bank. So that's how I started my business. I started with $15,000 and that's what we talk about in the course is the budget for that and how to start with just cash only. That's what I started out as. I think when I started my business because I was had just turned 18 or no wait, yeah, I just turned 18. So my credit card limit was like $500. So I obviously couldn't use credit cards. And so, so if you know my story, I sold out a portion of my business that I was a co owner with my brother. I sold that and used that money to bootstrap my current existing landscaping business that I have. And so I primarily started the business bootstrapping it. And then as you grow, typically what you're gonna want to do though is in order to scale fast enough, you need to be able to finance equipment. And so that's step number two. And so step number two, a way of starting or scaling your business is financing equipment. The reason I say you can start a business as well using this option is because really, if you finance a truck and you finance all your mowers and you finance all of your equipment, you can really actually get started for almost nothing. As far as going that route, I don't suggest going that route because in order to prove your market, I think you should start with a lot like lower your risk. Unless of course you have a whole bunch of money in the bank and you're gonna use that for marketing. And you know that you can depend on bringing a huge customer base in just by kind of a lot of marketing, advertising. But the last thing you wanna do is finance a whole bunch of equipment and a truck and all of that and have monthly payments and interest and then not have enough money to go out and market. And you essentially, that equipment doesn't do you any good. So I usually do recommend, if you're just starting out and you don't have a whole lot of money, try to bootstrap or use credit cards or whatever just to get started and even minimize the credit cards if possible, just so you minimize started. Now like I said, if you have more money, if you want to scale faster, you're gonna have to finance equipment and go that route. And the reason we talk about scaling and needing to be able to use other people's money, in other words the bank's money or some financial institutions money to scale your business is because you can take the long route. Like you can spend 10 years building a million dollar company. But if you want to scale fast, you are gonna have to finance some of the, like a good portion of your larger pieces of equipment as you continue to grow. Just to be totally frank and honest, we've never financed a truck. I've always bought those secondhand and like fairly new, but never have I financed a brand spanking new truck. And there's reasons for that, but the main reason is really just that it's a large ticket item, it depreciates in value like it depreciates and I don't know, I don't have a problem. I really think financing equipment that has 0% down is a smart idea in our industry. So most dealers, Gravely, Exmark, Toro, all those, they usually have 0% down for like 36, 42, 60 months. And that's a great way to really scale because you can essentially get a much bigger mower and a bigger setup and do bigger jobs. And as long as you have that inflow of sales, it makes sense just to offset the cost is offset of the, you know, two, three hundred dollars a month and you don't have to put a huge capital expenditure of like 10 or 12,000 up front. So that's a smart way to grow and scale. Obviously, if you're looking at net profit margin, it's really not the smartest thing to do as far as if you're just looking at net profit margin, because then you are spending money in interest and you are obviously paying more money if you're getting 0% down, because they obviously rot that into the the price. And they won't tell you that, of course, but that's what they do. And so if you're getting 0% down, I promise you, you're paying for it. It's essentially this market up. So.

And usually that's pretty evident. Like, if you go to a dealer, they're gonna say, hey, this is the cash price, this is the finance price. And then they tell you it's 0% down. But obviously you're paying more if it's a few thousand dollars more to finance it. So that. That's kind of the second option. Financing your equipment, you can get in into a business with less money up front, or you can scale a business using that. The third way is business loans. So business loans come in several different forms. You got like, SBA 7, you got 504 SBA, and then you got just like your regular business loan that you can go into a commercial bank and try to get one of those or a line of credit for a business, things like that. So this is the one I'd have the least experience in. And typically you're gonna do an SBA for if you want to start off really big and you have business experience in the past, or you might have exited really nicely from another company and you have business experience and you want to start out and really start off with a bang. Start off four or five employees, Start off with a retail location, start off with a shop, whatever that might be. SBA might be something you'd be looking for. Sba, like Small Business Administration. That's what SBA stands for. It isn't actually a bank. All it does is really ensure the business loans that the bank gives you. And they do that because business loans are historically very risky. So the sba, part of the government says hey to the banks and credit unions and things, they'll say, hey, we'll insure these loans if you give them these business owners. And they do that to obviously spur economic growth and job creation and things like that, which I think is great, by the way.

But so the sba, you can use it to really start off with a big bang at the beginning and to start your business. However, if you do that, they don't have any historical data as far as financials on your business. So they're gonna be probably looking at things like, do you have enough experience in the industry? Do you have an education in that field? Do you have personal assets? Things like that. And they're gonna be looking at, if you have, like, been in the business for several years and you wanna scale, purchase a piece of land, whatever, an SBA loan is also an option. And this is really the first time I've ever considered even going down the SBA route. And I've never got a business loan from a bank. I've got equipment loan from a bank, but I've never gotten a commercial business loan from a bank. When I say that sba, like I said, it is actually through a bank, but I never have actually got one yet. However, we're considering it, because if you listen to episode 16, the last episode, on my goals for 2017, you heard that I wanted to start a second shop location. And in that episode, I talk about how I'm planning. I was planning on doing that late 2017. Well, now I'm considering doing it early 2017. However, if I do it early 2017, the problem is I won't have enough cash to fund the whole operation.

Excuse me. Essentially, if. If I do it. If I do it all myself, if I just do all the cash, like, I need over $500,000, and I don't have that at the beginning of 2017, at the end of 2017, it might be something that we could. We could look into, and I think we could afford it. But now the question is, well, should I get an SBA loan? And so I can start it earlier in the year. And you might be like, well, that's crazy. Why just wait another 10, 11 months and do it then and not have to worry about the whole SBA loan application, all of that? It's a good question. I guess the answer is I'm an entrepreneur. I like risk and I like scaling things fast.

So I guess that's really all I have to say. It's a riskier move, large mortgage after that. Okay, so essentially, we're doing SBA504. Sorry, 504 is essentially for large, heavy equipment or equipment that you're buying for your business or for commercial land. And we are needed by commercial land. But in saying all of that, I'm still not sure if we're going to go with the SBA loan. It's just something that I think I almost want to do just for the experience. Because I know a lot of people who write into the podcast ask me questions. They are in that process, they're trying to do that application and it's not, I have it right in front of me now, all the paperwork, it's no small task. So I think it'll actually be good for me just even if we don't go forward with it, just for me to do all the paperwork and submit it and just see how the process goes and hopefully help other people on the course and through the podcast that are trying to go down the SBA route. So that was just kind of a wrap up of these kind of different options for financing. There's no right way to do this, really. There isn't. Obviously, if you have $200,000 sitting in the bank, you buy everything with cash and have money for employees and have money for overhead and money for burning the first couple months and money for marketing, that's a different story. Most of us don't have that. So at least when we start. And so I think that the key, the idea here is to make sure to get what works for you and get really focused on do you want to scale the business really fast? Because some people say, of course, yeah, I want to go to a million dollars in two, three years. And okay, that's great, but you're going to have to realize that you're going to have to, either you're going to have to get creative with financing or you're going to take every penny out of the business and not take any salary. Those are the things you're gonna have to think about. Or do you want to take 10 years to scale it to a million dollars, but be able to take out a six figure income each month, I mean each year out of the business. So it's just, it's really about your personality, what you want out of the business. And I think later on in this show I want to talk about really getting really clear about what you want out of the business and then from there determine your goals. Like last episode I talked about my goals. But those goals come a result of knowing what I want from the business, where I want it to be going, what scale percentages. I want to be seeing, what kind of revenue target I'm going for. Some people would be very happy to stay at 4 or 500,000 and take $100,000 home every year, 150. And so, like that's possible. And that's great if that's the lifestyle you want, because maybe you don't want to have 5, 6, 7, 10, 20 employees. You just want to stick with a few. And so it's really all really just comes down to what you want out of your business. That's where your goals should stem from and then from that. That' where you'll make your decision as to how you will finance the business. This is Mike Andes, episode 17 on financing your landscaping business. This is Mike and I have been talking on landscape businesscourse.com podcast. Check it out. Landscapebusinesscourse.com I'll see you in the webinar.