Detailed record keeping, return on investment, and preparation are keys to making sound equipment-financing decisions.
SUMMING IT UP
> To get the most favorable financial terms for equipment acquisition, golf course properties often lease equipment that is used on a regular basis and purchase pieces that receive less frequent use.
> Properties should factor in the depreciation value of equipment when deciding to lease or purchase.
> Thorough preparation is key when presenting equipment financing proposals to property management personnel and committee members, so superintendents can anticipate and answer likely questions and fully demonstrate the need for what is being requested.
Golf course superintendents rely on their maintenance equipment to perform in the field. For optimum results, they need to determine what they need, when they need it, and the jobs they need the equipment to perform.
First, however, they must make their equipment acquisition decisions pay off by determining the best way to finance the fleets at their golf courses—and to get the most value from their choices.
The golf course maintenance department at The Club at Nevillewood in Presto, Pa., a suburb of Pittsburgh, has $2 million worth of equipment in its inventory and a yearly lease budget of $130,000.
“We have lease payments in our operating budget. That helps us know what our cash flow will be for equipment replacement,” says the club’s Golf Course Superintendent, Ken Flisek, CGCS.
Lease terms vary for the 18-hole Nevillewood property, and at the end of each budget year, a few leases will expire. When the property purchases $250,000 or so worth of equipment, it spreads out the payments across four years.
“Some are even payments over 48 months,” says Flisek. “Some companies will let you double up payments for the six months that revenue is coming in. We do what is best for our cash flow.
“All of our leases,” he adds, “are capital leases, with a $1 buyout.”
Nevillewood generally replaces 10 percent of its equipment every year, Flisek says. “We try to do a large package every three or four years, where we could get a quantity discount on some of the equipment we would buy in a four-year lease with a $1 buyout,” he adds.
Most of the equipment at Quail Ridge Country Club, the 36-hole facility in Boynton Beach, Fla., (“Quail Ridge CC Spreads Its Wings,” C+RB, March 2019), is on a five-year lease plan. The property typically purchases equipment that it expects to last seven years or more.
However, reports Director of Agronomy Joe Ramsey, “The bulk of our equipment is going to roll out every five years.”
Quail Ridge, where the North and South courses share equipment, leases machinery because of the financial stability that arrangement provides.
“We do not lease through the equipment manufacturers,” says Ramsey. “We’re a big operation and have a great relationship with [our bank], so we do our own leasing through them and get fantastic rates.”
In addition, Ramsey says, “Because we lease, we know what our lease payments are year over year over year.”
At the end of a five-year lease, Quail Ridge refers to the consumer price index to help make financing decisions. “We can forecast based on that, because equipment prices in that span change no more than 3 percent,” Ramsey says.
At the 36-hole Oak Hill Country Club in Rochester, N.Y., the golf course maintenance department for the club’s East and West courses leases equipment that is used frequently, and purchases pieces that receive less work. Depending on the type of equipment, the property has three- to five-year leases.
“Some of our leases have a buyout at the end of the cycle, and others focus on the residual value of what we’re getting,” says Manager of Golf Courses and Grounds Jeff Corcoran.
Properties should factor in the depreciation value of equipment when deciding to lease or purchase, Corcoran adds.
Getting It On Paper
Flisek prepares his budget in December and meets with the Nevillewood Board in January for preliminary approval. At the annual meeting, he discusses equipment needs and financing, and presents his operating and equipment-replacement budgets. When submitting proposals to the Board members, he includes the make, model, and price of the desired equipment, as well as the purpose for which it will be used.
He also talks to his General Manager throughout the year when unexpected expenses arise.
“I guess I have the final say, at least in what pieces we’re going to buy,” says Flisek, who has been at Nevillewood since 1991.
On average, Flisek says, golf course maintenance equipment has a 10-year life cycle. He works out payment terms in the winter and orders the equipment in the spring, so it can be delivered in time for the next season.
While The Club at Nevillewood, where the fiscal year begins in March, typically buys equipment in the spring or summer, the property sometimes gets new equipment in November or December with no payments required until the following May, before equipment prices increase.
“We get the best payment terms that meet our cash flow, or the best quantity discount,” Flisek says.
To get the best prices it can, Nevillewood also buys multiple pieces of equipment at the same time when possible. Last year, for example, the club also purchased a utility vehicle when it bought a new rough mower, to get a quantity discount on the two pieces of equipment.
Quail Ridge sets its budget in May, and the property typically buys equipment in October or May.
Ramsey presents the club’s General Manager and Chief Financial Officer with a list of equipment that he wants to acquire for his department, and they give final approval. He also includes cost comparisons with other properties when he makes his proposals.
“You have to show the need, which is usually easy for equipment replacement,” says Ramsey. For an upgrade or new equipment, he adds, “You have to show the value to the club, or in some cases, the return on investment.”
That return could come in the form of improvements in expected playing conditions, or by quantifying savings on payments over time from technology such as GPS equipment or sprayers.
Three years ago, Ramsey compiled a 10-year projection of unleased equipment and set up a replacement schedule for those pieces, including tractors and backhoes.
“It didn’t encompass the entire fleet, but we saw aging of the equipment that we own,” he explains. “It becomes unusable even with regular maintenance.”
In addition to frequent breakdowns, he notes, aging equipment becomes visually unsightly. “Clubs lease golf carts because they always want them to look nice,” Ramsey says. “The regular maintenance of their biggest assets—the golf courses—should be regarded in the same way.”
The budget process at Oak Hill, where the fiscal year runs from January to December, begins in September, and the budget is approved in November or early December. Corcoran submits his equipment needs to the Oak Hill Board of Governors and the Finance Committee in a formal meeting.
Before meeting with the committees, however, Corcoran and his equipment technician look at each piece of equipment to compile a list of what needs to be replaced. They get costs, quotes, and leasing information, and submit a form for approval.
“We determine our needs based on the information we have,” says Corcoran. “You need to have the numbers prepared, so that you can answer any questions they come up with. It’s all about preparation.”
Making the Case
As part of that preparation, superintendents need the paperwork to back up their financial decisions. Flisek keeps a detailed equipment inventory that includes the type of equipment, purchase date, and estimated time of replacement. “We continually update that every year, so we have a good idea of what we need for next year,” he says.
He also finds it helpful to keep an equipment replacement spreadsheet. “The more detail you have, the easier it is to plan ahead and explain to the general manager and the Board what you need, so it’s not a surprise when you ask for $250,000 worth of equipment,” he says.
Quail Ridge has accounting software to keep track of its equipment inventory. The list includes information such as date of acquisition, a description of the equipment and whether it is owned or leased, and whether the club or property owners’ association is responsible for it (those two entities are scheduled to be merged later this year, which will eliminate that aspect).
At Oak Hill, the inventory list includes the serial number, model number, and date of purchase for each piece of equipment, as well as the year it rotates off the lease.
Corcoran also keeps detailed records about his equipment, including usage, hours of operation, repair costs, and turnover rate. “It comes down to those metrics,” he says of determining when to replace equipment.
For short-term projects, Nevillewood also rents equipment such as jackhammers, stump grinders, and wood chippers. And the property ended up purchasing a wood chipper that it had rented. “We knew we could use it more often if it was here,” Flisek explains. “And sometimes the rentals aren’t available when you need them.”
Nevillewood repurposes maintenance equipment as well; for example, after about five years of use, the property has converted greens mowers to tee mowers.
On some occasions, however, superintendents must make the decision to acquire equipment that is new to the market. In September of 2018, The Club at Nevillewood used cash to purchase a seeder that Flisek says was “brand new in the golf industry” to overseed its roughs. The maintenance department initially had another rough mower in the budget, but decided it was more important to get the seeder.
Quail Ridge purchased a new roller, a piece of equipment the property previously did not have in its fleet, in the fall of 2018. “We showed how rolling versus not rolling affects greens speeds,” Ramsey says. “It was an easy sell.”
Weighing the Benefits—and Drawbacks
Many golf course properties lease equipment that receives a lot of use, and purchase pieces that are used less frequently. However, superintendents find that there are pros and cons to each method of acquisition.
• It is easier to budget for the equipment, and the property does not have to pay for it in a lump sum.
• The lease can be rolled over from one budget year to the next.
• A lease is a good option when a property cannot afford to pay cash for equipment.
• Leasing gives properties something to budget every year.
• Properties do not have to worry about equipment breakdowns when they lease equipment.
• The repair costs of leased equipment are kept to a minimum, because the pieces are generally only three to five years old.
• Interest rates might be higher, making the cost slightly more expensive over a four-year purchase period.
• If a property has the money to spare, it can buy a piece of equipment with no interest payments.
• Properties should purchase equipment that they expect to keep long term for at least seven years.
• The purchase of equipment requires a large upfront cash commitment.