Buying the right vehicles for your fleet is very important.  Your purchases should come down to the numbers and whether or not your business afford the truck your needing.  Efficiency, reliability, capability, maintenance costs, loan payments, etc.  All these variables need to be taken into account.  In many service industries (lawn care, landscaping, electrical, pest control, tree service, etc.) the reality is your customers will not pay you more for brand new shiny trucks.  They pay you to show up and complete the work you agreed on for a fair price in a professional manner.

Your vehicles need to clean but brand new is definitely not a must.  A brand new diesel truck can cost upwards of $50,000 to $60,000.  A $50,000 loan at 5% interest for 5 years is $943 per month. That’s $11,316 per year in loan payments.  That doesn’t include any regular maintenance such as oil changes, tires, etc.  That debt load can easily cripple a new business along with the depreciation hit you will take if you go to sell it after a couple years.

Let’s look at covering your debt.  If your bank is requiring you to show 1.5x debt service coverage to cover the note on the truck you would have to produce $16,974 in net income to pay for the truck on an annual basis.  Let’s assume the net income after gross profit and expenses is 10% of your gross revenue the crew using the truck would have to generate $169,740 a year in  gross revenue.  I don’t of many start up service companies that come out of the gate with those numbers.

If you just starting up your business and are tight on cash you SHOULD NOT purchase new.  The debt payments can quickly drive you into the ground.  It’s likely you will need other equipment as well when starting up which will only strap you further in the event your gross revenue projections are off.  Customers will not pay you more because you need to pay for a brand new truck.   You’re better off finding a nice used truck for $10,000 and putting that into use.  You could own 5 trucks at $10,000 and produce 5 times the amount of work for the same initial investment.  You will have higher maintenance cost and risk with a $10,000 used truck.  However, it is almost always under the annual loan payment on a new truck.  With a $10,000 you will not lose as much money when you go to sell it.  If you take care of the truck and it is kept in good shape it will likely be worth what your paid for it or a little less when it comes time to sell it!

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                          | 2001 – F350 |                                                                | 2018 – F350 |

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By Corey Sedrel