A well-designed and executed negotiation and evaluation process can bring more efficiencies- and savings- to the annual equipment purchase/lease cycle.
With the exception of personnel hiring, few decisions made by golf course superintendents have a longer-lasting impact than those made concerning equipment purchasing or leasing. There are no “one size fits all” scenarios that are appropriate for every operation. It behooves every organization to take this process seriously, and not only because of the great potential upside for negotiating a deal that can yield dividends for years to come. If all areas of the decision are not thoroughly considered, there is also an equal, or even greater, possible downside: getting locked into an equipment package that could be cumbersome at best, and disastrous at worst.
SUMMING IT UP
• Negotiating the right deal can yield dividends for years to come; the consequences of a bad approach can range from cumbersome to disastrous.
Lease vs. Buy
The most basic equipment-related consideration is whether to lease or purchase. Some clubs with tremendous financial resources just elect to purchase everything, while properties where cash flow is a concern choose to place everything on a lease. Most clubs, however, find it best to do a bit of both—with the trick being how to make the best use of each option.
Here at Prestwick Country Club, we purchase all of our lower-use items, such as tractors and backhoes, and lease higher-use items such as mowers and utility vehicles. Dennis Wade, CEO of our parent company (The Jackson Companies), elaborates on this approach:
“The primary factors that we take into consideration are cost of capital, equipment useful life, and desirability of ownership,” Wade says. “We are fortunate that we can leverage our overall corporate financial strength to obtain financing that’s generally well below typical equipment leasing or financing rates.
“The more subjective issues relate to whether we want to own the equipment long-term,” he continues. “As you know, some pieces of equipment undergo extreme wear and tear and by the end of the lease they generally have little residual value, if any. These ‘turnover’ pieces of equipment are usually structured under straight operating leases, as we plan to lease replacement equipment every three or four years.”
|Prestwick Country Club purchases all lower-use items such as tractors and backhoes, and leases higher-use items such as mowers and utility vehicles.|
Coming to Terms
There are many types of leases; this article will focus on a “true lease” that is expensed through the operating budget and allows the equipment, at the end of the lease term, to either be turned in or purchased for fair market value.
When considering a lease term, it is important to consider the amount of use the equipment will receive. Here in Myrtle Beach, S.C., we maintain the course for play twelve months out of the year, so a three-year lease term makes the most sense for us. But for a course in the north, which may only utilize the equipment for six to eight months each year, a five-year term would be more appropriate.
It is also very important to track the hours of each current piece of equipment on an annual basis. Most standard lease agreements allow for 750 hours of use annually for the term of the lease. Exceeding the allowable hours will result in additional per hour charges at the conclusion of the lease term.
By the same token, if you track the hours on your current equipment and determine with confidence that you will not exceed 600 hours annually, you can negotiate a more attractive lease price, based on this lower use rate.
Negotiating an equipment package, be it a purchase or a lease, is a multifaceted agreement. “Pricing is only one of four or five important factors involved in the decision.,” explains Tommy Witt, Past President of the Golf Course Superintendents Association of America and current Director of Golf Course Operations at Northmoor Country Club, Highland Park, Ill.
“The reputation and past performance of the distributor is perhaps the heaviest weighted factor in my decision,” says Witt. “Without credibility, integrity, and a positive history of great service, the lowest price is meaningless.
“Comparing pricing of repair parts is also important,” he adds. “Predetermined discounts in pricing is a factor to consider. It is also important to research and consider how long the individual part may last on the unit. For example, what is the life expectancy of belts, seals, reels, etc.?”
Other important considerations include the suitability of a particular manufacturer’s equipment to effectively do the job based on your particular course, and feedback garnered from your operators through the demo process. This last point also emphasizes how purchase/lease decisions, like other aspects of course maintenance, also benefit from a team approach.
Worth Keeping Around?
It has often been said that leasing has all of the costs associated with ownership, but none of the benefits. And at first
glance, this may appear to be true. But when one considers the amount of use that mowing equipment and utility vehicles receive over the course of a three- to five-year period, another question is raised: While purchasing the equipment, either outright or through financing, would result in ownership of the equipment, what would be the real value of what you own?
“The worst part of [ownership] is that when you go to trade in the equipment, you become a used equipment dealer,” notes Jeff Black, formerly the Head Equipment Manager at Desert Mountain in Carefree, Ariz. Leasing high-use items also allows a course to keep equipment on a structured replacement schedule, thereby reducing maintenance and repair costs, as well as hard-to-track losses due to downtime.
|Packaging equipment into one master agreement should be superior to “cherry picking” a piece or two at a time from different manufacturers.|
From the standpoint of purchasing power, packaging equipment into one master agreement should be superior to “cherry picking”
a piece or two at a time from different manufacturers. Once the total package reaches $250,000 and beyond, serious volume discounts can begin to kick in.
In my experience, most distributors will allow a club to include some equipment from other manufacturers in the package without jeopardizing the volume discount—so you certainly shouldn’t hesitate to ask to have the “odd brand” included in the package, if you feel it is definitely what you need.
A high-volume package can also allow you to negotiate additional incentives. “In a previous negotiation, one manufacturer offered to provide a free tractor during the period of the lease,” Tommy Witt reports from his experiences. “Extended warranties of two to three years can help to reduce repair bills in the operating budget. Guaranteed shipping savings and parts discounts can provide valuable savings throughout the term of a three- to five-year lease.”
Other angles that a superintendent can use to negotiate price, Witt suggests, include the prestige of a club in a certain region, or proof of its track record, from prior leases, of maintaining equipment and returning it in good condition.
Value of an Early Start
When considering capital equipment transactions, it is important for all involved to recognize the long-term impact of whatever deal is reached. In most cases, it would be appropriate for a superintendent to begin working on the next equipment package six to eight months prior to the expiration of the current package term.
The size of the capital outlay, and the period of time a club must live with the agreement, is worthy of a superintendent’s due diligence. Without careful consideration of all aspects of a proposed equipment package, there is the potential to leave money on the table or get trapped in a deal that does not meet the club’s long-term needs.
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