Very Green - need help

[percmd]

Ok, here i go, this is my first post so bare with me. I have recently gotten into the construction business. I have now idea where to begin. This is what i have:
1 - 1988 Mack DM688S dump truck(tandem)
1 - 1993 John Deere 5200 w/7' blade
1 - 1997 Komatsu D31 P (at my disposal kinda)

Here's the deal. My uncle has the bulldozer but not in the construction business, bought to cut hunting lanes but that's another story. He would like to help me out with my business but would also like a little peice of the pie, and why not, it is his machine. The problem is that i have no idea how to price it out so i don't know how to cut him in. We live in South Louisiana. I am starting out small, delivering material with the truck and i would like to be able to offer services for spreading the material also. Got a price from a local rental, LA Machinery, they rent this size dozer daily @ $350/day, no operator. So we can start there. Inside scoop from a local business owner willing to feed me a little info is that the machine/operator would go for $70/hr with a 5 hour minimum, $150 flat transportation fee to/from jobsite. Machine holds around 50 gallons of fuel. I need to put together a proposal for him to go over in regards to basically renting the machine from him, for his cut. Now the thing is, i don't want to undercut either one of us, it is family ya know. I have to think about my time to market the machine, hustle the work, repair the machine, maintain the machine, transport the machine to/from the jobsite and also operate the machine for the projects. Might i add that i am a 1 man show right now. So can someone steer me right, i could really use the dozer to help me get started, i'm just not in a position where i can afford to undercut myself, and i don't want to insult him with too low of a rental price. And how do we decide who pays for repairs, yes i do realize i am the one who will be abusing the machine. Thanks ahead for any help.

 

[percmd]

oh, and if anyone has some sort of guide for a proposal, like a microsoft works processor format or pdf, that would be a plus! thanks again

 

[percmd]

ok then, i guess i'm on my own with this one... take flight or crash i burn i suppose.

 

[CM1995]

Welcome to the Forums percmd. From the info you have given, the bare rental rates for your area vs $'s per hour don't compute to well for someone having to rent a dozer.

Bare rental - $350 per day. Add operator, fuel, etc
Going rate per hour - $70 with a 5 hour min = $350.
Transport - $150

Assume you have one 5 hour job to do each day.
Job income $350
Rent -350
Hauling $150
Profit $150

So you have to pay yourself, put fuel in the machine, insurance, taxes and put back repairs (on the dozer, truck and trailer) on $150 per day. If you blow a tire on the Mack going to a 5 hour job you just went backwards and are paying to work.

You will need to put at least 8 hours a day on the clock to even begin to make money. At 8 hours that gives you roughly $300 in profit which is not bad considering the times but hardly enough to put back for any major repairs and pay yourself and the other costs associated with running a business.

As far as a rental agreement template, I would just draw a document up that is agreeable to both parties and go with that. You need to crunch the numbers and come up with a rental rate that is acceptable to your uncle and one that you can make a little money, after all you are the one putting the work together. Good luck.

 

[percmd]

Ok, i understand. So it would be to my advantage to bid the jobs based on a daily sum and then come to terms on that. The way i figure it now based on an 8 hour day, 8am to 5pm is:

8 hr. job @ $70/hr. = $560
Dozer rental $150/day(what i can afford to rent for now and make a profit)
Transportation surcharge $150/job
Profit = $560/day
If you take out for taxes, insurance, fuel, etc. it comes in right around or just under $400/day profit. If my jobs go over more than a day, the rental knocks me back $150/day on the profit. The jobs i am trying to get are mostly residential. Haul in house pad material(dirt or river sand) on residential lots and spread it with the machine. Haul materials one day, spread the next. Dozer would only be used on the 2nd day of the job. Does this sound like a decent profit? I didn't include the profit from the materials either, minus the operating cost of the dump truck.

My transportation surcharge would pay for the machine rental for a one day job. I'm going to offer him $150/day to rent the machine from him. I think it's a fair deal considering i am doing all of the leg work, marketing, operating(1 man show), transporting, maintaining and assuming responsibilities for repairs.

 

[Randy88]

I'm sorry for jumping in late but I've got another suggestion. I'd foreget about the daily thing for the dozer and just pay him so much an hour for the use, that way neither one of you ends up getting beat. You only pay for the hours you use it and same goes for the repairs and upkeep. I wouldn't worry about the rental on the machine, its not really revelant in this case, is he renting it to somone else instead of you? I've done those rentals before and usually they don't work the best for either party and ended up doing it by the hour and figured off the hour meter. That way it was fair for everyone and you both knew exactly what you were getting and paying and if you use it more or less in a day or week or month it works out better. I'm not sure about your figures and how your going to manage to stay busy for a full eight hours a day but if it works go for it. Make sure you pencil in a profit on materials and anything else thats needed. As far as the repairs and who pays for them I'd negotiate that as well, you don't want to end up with a large repair bill and no means to pay it, remember its a used machine and you didn't wear it out you were just using it when it finally broke. Just my two cents.

 

[DanRooks]

How to Place a Value on Another Person’s Machine

Ok, here i go, (shortened) My uncle has the bulldozer but not in the construction business, bought to cut hunting lanes but that's another story. He would like to help me out with my business but would also like a little peice of the pie, and why not, it is his machine. The problem is that i have no idea how to price it out so i don't know how to cut him in. (Shortened)

From time to time a person has the opportunity to use another person’s machine. The challenge is to determine the value of that machine. A machine's value is established by first determining the machine’s cost per hour. Once you know the cost per hour of your uncle's (or the owner’s) machine, you can start to put a price or value on that machine.

One method is to find the “Equivalent Value” of the machine. This helps to make sure that you are not over paying for the borrowed machine. There are times when it is cheaper to rent a machine than to own or borrow a machine. Likewise, some people are renting when they should be owning.

Determining the cost of a machine is not particularly hard. But, the first time you cost a machine it does take some time to collect all of the necessary information. This is an estimate. It is not perfect but it is lot better than guessing or using someone else’s numbers.

All too often people try to take a very dangerous a short cut by using rental or competitor prices for the purpose of setting the price they charge for a machine. It is natural (but wrong), to think that; "They must know their cost, because they are a large operation". Remember being bigger does not automatically mean better. It just means that they can get away with mistakes (like poor cost calculations), longer than the smaller guy.

The value of a borrowed machine has a lot do with the Owning Costs of a machine. These are the fixed costs of owning a machine. An older machine’s Operating Cost is first determined by Fair Market Value (FMV) of the machine. A visit to Ritchee Bros. web site, Auction Results, will give you a quick (but rough), idea of the machine’s FMV.

The more hours you use the machine in a year, the less these hours will cost you (or the owner) per hour. A machine that get used 1,000 hours a year will cost about 66% less Owning Cost per hour, than a machine that only gets 333 hours of use per year. This is because the fixed costs are spread over the hours the machine is used.

People are shocked to find out that the old machine they keep around for occasional service is perhaps costing them more per hour of use, then a new machine that gets used regularly. It is a absolute fallacy that a machine which is paid-off, only costs you for fuel and grease.

Operating Cost must include not only fuel, oil changes and grease but also many other costs for future expense of:

• Major component or parts repair and replacement
• Ground Engaging Tool wear parts
• Tires or Track and Undercarriage
• Many small repairs costing less than $500.00.

The Life Cycle of these components and parts are directly increased or decreased by the Job Conditions or Work Application where the machine is used. (See here).

Here is a link to a free online costing tools which you can use to bring many of these costs together. (Click here). Send me a message if you would like to get more information on machine costing.

Dan

 

[GGDOZERINC]

Percmd exactly where in south la are you?

 

[digger242j]

People are shocked to find out that the old machine they keep around for occasional service is perhaps costing them more per hour of use, then a new machine that gets used regularly. It is a absolute fallacy that a machine which is paid-off, only costs you for fuel and grease.

Operating Cost must include not only fuel, oil changes and grease but also many other costs for future expense of:
Major component or parts repair and replacement
Ground Engaging Tool wear parts
Tires or Track and Undercarriage
Many small repairs costing less than $500.00.

Dan, I can understand where the hourly cost on that old machine could well be higher than for a newer machine, but I'm curious about something--I belive you said elsewhere, that if you're going to use a machine less than 500 hours per year, it makes better sense to rent. What would shock me is if it would be cheaper to rent a machine to replace the one you only keep around for occasional use. If a machine is long since paid for, and has a relatively small resale value, doesn't it make sense to hold onto it for those "occasional" uses, as opposed to renting something?

Just to pick some numbers out of the air, say you can only get $10,000 from the sale of a machine, but to rent an equivalent machine would cost $250/day. If you get 40 days use out of that machine, you're even with what it would cost to rent. Even if all 40 of those days you used the machine for a full 8 hours, that would only be 320 hours total. I'm sure lots of guys own machines that are only worth $10,000 in sale, but have more than 320 hours of useful life left in them before they'll need a major repair. (Recognizing that the nickle and dime stuff will skew things a bit, if and when it comes up.)

Now, whether it's worth it to put money into a major repair at that time is a different question, but if you presume it's not worth it, and write the machine off at that point, doesn't the cost of those 40 days/320 hours really only add up to putting fuel and grease into it?

 

[DanRooks]

Dan, I can understand where the hourly cost on that old machine could well be higher than for a newer machine, but I'm curious about something--I belive you said elsewhere, that if you're going to use a machine less than 500 hours per year, it makes better sense to rent. What would shock me is if it would be cheaper to rent a machine to replace the one you only keep around for occasional use. If a machine is long since paid for, and has a relatively small resale value, doesn't it make sense to hold onto it for those "occasional" uses, as opposed to renting something?

If I said that at 500 hours you should rent. I was wrong. I should have said "You should considering renting" or "It MIGHT be cheaper to rent."

The question of keeping or selling a old machine is a highly individual management decision. I do not believe in a One-Size-Fit-All, answer. There are just too many variables. Just one of these variables is the “Type of Use Planned.” A friend has a CAT D5 Dozer. He is not “in the business.” He just likes tinkering and pushing dirt around on his property. His decision to Keep, Sell or Rent will be very different than a businessperson (who is employed at a profit-oriented enterprise), might make.

A $10,000. machine could be different than a $38,000.00 machine. The point is that if you do not accurately calculate the COST per hour, you will never know how much that old machine really costs per hour. What seems to be the right decision, may be costing you more than you think.

This decision changes over time. A 1998 CAT 345BL had an auction value of $77,000. in 2008. Today that same machine may bring $38,000. I think this could change your decision to Buy, Rent or Sell.

Keeping a machine is a lot like buying a horse for your daughter. It will cost you more than you think. Even if she does not ride it, the cost will be plenty. I have seen old machines cost an owner $250.00 per hour. vs. $75.00 per hour for the same machine on the front line that gets used.

Thanks for your question Digger242j, you always keep this interesting.

 

[John C.]

In reviewing this thread I see an issue that hasn't been directly addressed on the dozer. What is its current condition? How many operating hours are currently shown on the hour meter? Does the hour meter even work at all?

It was reported as being a 1997 model of machine. That makes it at least 13 years old. Rubber parts have a shelf life of approximately six years. You might have an issue of breaking rubber hoses and failing O ring seals all over the machine. What do the drive belts look like? Is there any upholstery left on the seat? Has the undercarriage been measured so you know how much wear you will be responsible for paying on when it needs to be replaced? What is the condition of the blade and its support linkage? If those joints are worn out you will have a hard time running grade.

You have to remember that rental companies supplement their rental income with the sale of the machine at the end of their turnover schedule. Most rental machines do not have much if any undercarriage left, which is a huge cost avoided by the rental company. So how much would you pay in rental for a machine with tracks that might come off at any time.

So part of the cost of renting a machine from the rental company is paying the risk of that machine running productively till you finish your job. As an end user I called this availability and in production uses you simply figure the time when it can be used against the time it can't be used. In new production machines we had to have 95 percent minimum. What do you think the availability would be for a thirteen year old machine that has been sitting most of the time. I'm guessing that when you first start using the machine your availability with be somewhat less than sixty percent. As you put repairs and shake down time back into the value of the machine it will come up to around seventy five percent depending on original condition.

With all this I would suggest if you were to go ahead you should figure your rental costs with this in mind.

Good Luck!

 

[DanRooks]

Machine Availability and Productive Time

Excellent post John C. I would be interested in hearing how you calculated this and what costs you came up with at different levels Ie. 75%, 85% or 95%. This cost may be in some conditions, almost as much as the repair budget itself.

 

[td25c]

Ok, here i go, this is my first post so bare with me. I have recently gotten into the construction business. I have now idea where to begin. This is what i have:
1 - 1988 Mack DM688S dump truck(tandem)
1 - 1993 John Deere 5200 w/7' blade
1 - 1997 Komatsu D31 P (at my disposal kinda)

Here's the deal. My uncle has the bulldozer but not in the construction business, bought to cut hunting lanes but that's another story. He would like to help me out with my business but would also like a little peice of the pie, and why not, it is his machine. The problem is that i have no idea how to price it out so i don't know how to cut him in. We live in South Louisiana. I am starting out small, delivering material with the truck and i would like to be able to offer services for spreading the material also. Got a price from a local rental, LA Machinery, they rent this size dozer daily @ $350/day, no operator. So we can start there. Inside scoop from a local business owner willing to feed me a little info is that the machine/operator would go for $70/hr with a 5 hour minimum, $150 flat transportation fee to/from jobsite. Machine holds around 50 gallons of fuel. I need to put together a proposal for him to go over in regards to basically renting the machine from him, for his cut. Now the thing is, i don't want to undercut either one of us, it is family ya know. I have to think about my time to market the machine, hustle the work, repair the machine, maintain the machine, transport the machine to/from the jobsite and also operate the machine for the projects. Might i add that i am a 1 man show right now. So can someone steer me right, i could really use the dozer to help me get started, i'm just not in a position where i can afford to undercut myself, and i don't want to insult him with too low of a rental price. And how do we decide who pays for repairs, yes i do realize i am the one who will be abusing the machine. Thanks ahead for any help.

I think I would keep it simple as possible in the beginning.Maybe see if uncle will operate the dozer on your jobs then pay him the 70.00 an hour or whatever you an he aggree on.That way uncle gets a piece of the pie so to speak,he operates,fuels,& maintains the dozer.Might try it for awhile & see how things work out.Good luck on your new business venture Percmd.