Earthmoving is a cyclical business which ebbs and flows with changes in the real economy. As an owner or manager of such a business, you need to set your company up for success. One way is to avoid making the following crucial mistakes. 1) Underestimating the Importance of Small Projects You may be tempted to shy away from small projects because there is less money to be made. The truth is that small projects often present better margins with less deadline pressures. It also gets your name into the market and increases the chances of future referrals. 2) Inadequate Financial Knowledge Money and finance is something we never learned about in school, yet they are integral in our business and personal lives. Your goal is maximize profits – this is done through increasing earnings and cutting costs. You need to have a comprehensive accounting software package in place, where you can see in real time your monthly income statement and cash flows. You want to understand the following: the financial cyclicality of your business (is there a pattern to the months/seasons in which you are busy and quiet), are your customers paying you on time (in which customers is your risk consolidated), do you know how you spend and how you can cut unnecessary spending. 3) Buying instead of Renting Capital Equipment The world's concept of ownership is changing. Companies have traditionally purchased yellow metal equipment outright. There is, however, the emergence of an increasing trend towards alternative funding methods that do not require large capital outlays. While purchasing equipment outright gives businesses the benefit of ownership, when it comes to yellow equipment, this benefit may be outweighed by those offered by alternative funding options. In the current climate, companies are seeking to improve their cash-flow, which means that capital expenditure needs to be cut wherever possible. There are various options available to companies that can minimize risk and maximize cash-flow. 4) Always Choosing New over Used With so much high-quality used equipment on the market at any given time, there’s really no need to go for new equipment. There are three reasons why used equipment is better than new. Firstly, lower cost. The cost of one new piece of equipment could equate to two or more used pieces, depending on availability and demand. Secondly, you avoid the initial depreciation. New heavy equipment is no different from new cars in that the minute you drive them off the lot, they depreciate in value – as much as 20 to 40 percent in the first 12 months. Thirdly, used equipment holds its value. Although used equipment has depreciated, it can hold its value if it’s well-maintained. When it’s time to sell, it’s actually possible to get close to what you paid if you sell at the right time, to a market where your equipment is in demand.
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