The current economic conditions have taken a toll on all small businesses. With sales down and unemployment up, most small business owners are taking some time to reevaluate their current business strategies and develop new ways to grow their business while saving money. The construction industry is no exception. As summer approaches, typically the busiest time of year for this industry, savvy contractors are figuring out how to do more with what they already have.
Many contractors have already added a tool carrier to their fleet, which could include anything from a skid steer loader to a compact track loader to a telehandler. These machines were designed for versatility and ease of use. With the recent tightening of budgets, contractors are relying more heavily than ever on these machines, and more specifically on the attachments that make them so versatile.
One of those contractors is Bob Namchek, owner of Pioneer Electric in Grand Rapids, MN. According to Namchek, the key to staying busy during this economic slump is to reduce the amount of work you subcontract and keep as much business as you can for yourself. One way to do this is by investing in attachments, giving your current equipment the ability to do more.
"Attachments will basically pay for themselves in one summer with the number of jobs they bring in," says Namchek. "Then I'll have that piece of equipment forever, and will continue to profit from it with the additional jobs. If you can stay busy working, and don't over-invest in a bunch of new machinery at once, you'll be surprised how quickly you'll start to see a profit."
While Namchek says he has been using this business model even before the downturn in the economy, other contractors are beginning to follow suit. The economic stimulus package has provided a significant tax deduction for equipment purchases as well as accelerated depreciation rates. These incentives, along with low interest rates, have enticed contractors to invest in new equipment, especially attachments.
Lance Schjenken, attachment marketing specialist at Terex ASV, agrees that more and more customers are looking at attachments as an alternative to purchasing a whole new piece of equipment. "There has definitely been an increase in the sales of attachments," Schjenken says. "They're cheaper than buying a new machine and they allow you to be more job specific, while at the same time giving you more options with your current equipment."
Versatility and job diversification has become the main goal of many contractors looking to keep their small businesses afloat. Over the years, Namchek has managed to grow his business by investing in a compact track loader along with a series of attachments, including a trencher and a backhoe attachment. He has also added a harley rake, forks and a bucket to his line-up. Most recently, he purchased a vibratory plow for burying cable, a job he used to have to subcontract. Not only will the plow help keep more work in-house for Namchek, but he also hopes it will expand his customer base. "Hopefully, other contractors will start subcontracting to me," says Namchek. "This will generate work from a broader customer base, and will help me recoup the cost of the plow that much faster."
Although many contractors are hesitant to purchase new equipment in this unstable economy, Namchek shows no reservations. "My theory has always been that tools and equipment make you money," said Namchek. "You have to consider how much it would cost to subcontract a job and how much it would cost to just do it yourself. However, I don't finance any of my equipment purchases. If I don't have the money to buy it, I don't buy it. I think that's how a lot of small businesses get into trouble.
While diversifying your fleet may mean spending a little more money up front on new equipment, both Namchek and Schjenken agree that a simple cost per job analysis will help you determine your return on investment and how quickly you will start to see a profit. Proper maintenance will help increase the life expectancy of the attachment and ensure you get the most work out of your equipment.
According to Schjenken, there is no exact way to determine the life expectancy of an attachment. However, there are some simple things you can do to extend your equipment's life. "The life expectancy of attachments will ultimately depend on the attachment itself, the type of work you're doing, and how often you're doing it," said Schjenken. "But basic, routine maintenance is easy to do and will really only cost you a little bit of time."
Namchek takes the same view. "Regular maintenance is key for any piece of machinery to minimize downtime and extend product life. With attachments, I can do the basic maintenance myself. All you really need is a little bit of grease and some time to keep your equipment running smoothly."
Proper maintenance will significantly extend the life of your equipment, but every contractor knows no machine can run forever. But when the time comes for Namchek to invest in some new equipment, he will simply do what makes the most sense for him and his business, whether that is buying new or repairing the old. "The way I see it, when the time comes to replace a piece of equipment, you can spend half as much and still have an old machine, or you can spend twice as much and have a brand new one. If you've gotten just about as much as you can out of your old machine, you might as well invest in something newer and better that will pay off in the long run."
While there is no telling when the economy will turn around, it is clear that Namchek's simple, logical approach to work and finance is what has kept him in business for more than 30 years, and is what will continue to keep him in business well into the future. And he is more than willing to offer some advice to other small business owners looking to employ his business model. "No job is too small," he says. "A small job may lead to a referral for a bigger job. Just keep yourself busy. Do the small jobs and do the big jobs. They all pay the same."
Construction Business Owner, July 2009
