Growing Company Keeps Tabs on Equipment Purchases Closely

Contractor evaluates equipment purchases at all of his company’s locations every year and has a plan when it comes to buying
Growing Company Keeps Tabs on Equipment Purchases Closely
Jim Dandy Sewer and Plumbing owner Scott Spencer stands outside of his company located in Seattle. Spencer also owns three other plumbing operations throughout the country. (Photography by Mark Mulligan)

Interested in Relining/Rehab?

Get Relining/Rehab articles, news and videos right in your inbox! Sign up now.

Relining/Rehab + Get Alerts

When Scott Spencer purchased Jim Dandy Sewer and Plumbing in 2012, he invested over $200,000 in equipment and tools to help his Seattle-based company grow.

Since then, Spencer has added three more plumbing operations to his collection — Affordable Plumbing and Heating in Colorado Springs and Denver, Colorado, and Marv’s Plumbing and Heating in Cheyenne, Wyoming.

His employee base has grown to 150, and in addition to plumbing and drain cleaning services, they also provide HVAC, excavation, pipe bursting, relining, CCTV and hydroexcavation.

Q: When you bought Jim Dandy, how did that fit into your plan?

SCOTT: Three things that I base everything on. First thing is employees. We value our employees. Every decision we make is going to be good for the employees. The second decision is equipment, and the third is expansion. These three things drive my company. Plumbing companies are always in need of replacing and updating equipment.

Equipment is not typically foremost in the mind of people in terms of continuing the business. When we purchase equipment we do it to expand and to provide for employee opportunity. So this is obviously a major component of every decision we make.

Q: Did you budget the $200,000 or did it just cost that much to do what you wanted?

SCOTT: The first year at Jim Dandy we knew what we were going to update and what we would have to spend. I do budget each year, and put some aside for emergency items. You might say we will spend $150,000 this year, but we also have $15,000 in reserve for emergencies.

Q: Do you buy used or new when it comes to the equipment?

SCOTT: I don’t lease or rent. I buy up to 80 percent of my equipment used. We buy at the auctions primarily. On equipment, tools, we don’t buy anything older than seven years. With vehicles we don’t buy anything over 100,000 miles. We budget for capital expenditures every year and purchase with cash accordingly.

I just have a tough time buying new because I know you lose so much of the value when you drive off the lot. We just picked up a Vactor truck for $25,000 with less than 40,000 miles on it at an auction. It was a 1998 and came from a Northern California municipality. It was in great shape. We got it for a steal.

Q: How does buying used equipment at auction or otherwise benefit you?

SCOTT:  This past year we spent over $500,000 on used equipment for all four locations. Section 179 of the IRS code allows you to purchase up to $500,000 in used equipment and accelerate the depreciation. Expense it all of that year.

Q: Did your past experience working for a major franchise benefit you in this regard?

SCOTT: Absolutely. With every asset you purchase, you look and see if you are using that equipment to full capacity. If purchasing equipment, what is the return on investment at that point. There is a process for any kind of capital expenditure. You always calculate your return on investment. This includes all types of equipment. Any expense over $2,500 for us goes through that process. I give my general managers the authority to approve up to $2,500.

Q: When did you begin to acquire the other shops?

SCOTT: We purchased Affordable Plumbing and Drain in Colorado Springs in August 2014, Bel Air (now Affordable Plumbing and Drain) in Denver in 2015, and Marv’s Plumbing and Heating in June 2016. We actually have a letter of intent with another in Florida.

Q: What was the first consideration for equipment when looking at a new entity?

SCOTT: I have my mechanic in Seattle, Adam Forbes, who travels to each location. We then sit down and rank the needs of the operation. We do a budget to see where we feel we will be and when we can purchase equipment. That is kind of how it works.

Q: What do you do as far as inventory in the four locations?

SCOTT: We try to keep it consistent throughout the locations. One example would be HammerHead for pipe bursting. We want to use the economies of scale and let people know that if we chose you as our vendor there will be more to come. For cameras we use RIDGID.

Q: When you purchase another company, how much attention must you give to the existing inventory?

SCOTT: Nine times out of 10 when I purchase, the previous owner has no idea what he has in inventory. We’ll go through it. I have to put a cap on every acquisition. I’ll buy up to $25,000 in additional inventory. There is often more than is what was on the books.



Discussion

Comments on this site are submitted by users and are not endorsed by nor do they reflect the views or opinions of COLE Publishing, Inc. Comments are moderated before being posted.