Growers Contemplate the Benefits of Leasing and Buying
Many growers in the industry have had to deal with the issue of buying or leasing both their equipment and facility. GPNdiscussed this issue with several growers to find out the benefits of their decision. Here is what some growers had to say.
P.J. Ellison, owner of Ellison's Greenhouse, Brenham, Texas, says her company purchases all their trucks, soil machines, trailers and other equipment. "So far, it has been more cost effective for us to own our equipment than it has been to lease it. Some of our equipment was purchased before leasing was an option. There's no need to replace it. We pretty much use the equipment year round."
For Angela Bernacchi Greenhouses, La Porte, Ind., leasing their trucks was more cost effective. Cory Hannon, co-owner and vice president, says, "In order to buy a new truck, it would cost over $80,000. To lease it only costs $300-400 a week. We only use them seasonally, so in the long run, it ends up being cheaper. We bought our flat filler because we use it year-round. In the spring, we use it for flats and in the winter we use it to fill pots."
When leasing trucks, Todd Friye, vice president of Bergman Nurseries, Inc., Quincy, Ill., suggests getting an open-end lease. "In an open-end lease, you can set up the structure of the lease anyway you desire," Friye said. "If you want the ending value of the truck you are leasing for three years to be say $10,000, then the lease is structured that way to come up with your monthly payments. The difference in leasing versus buying is in the price you pay."
Edward Knapton, president of Berry Hill Farms, Cottage Grove, Wis., says his company leases because it allows them to grow faster and put more money into the company. "We have leased a number of items and actually have two leases now. I plain and simple did not have the 20 percent down, nor could I get a bank to lend us the money," said Knapton. "I got a lease with a net of 7.2 percent including the buy back. I will net about 3 percent more to the bottom line with the equipment. Leasing an appreciating asset is a different matter. Normally you can only write off buildings over a 40-year period, but you can write off a lease for the term."
While leasing has seemed to be the best option for grower's equipment, the majority seemed to agree that the most effective option is to purchase the facility.
"Always buy your land," urged Jamie Jamison of Brandywine Nurseries, Wilmington, Del. "When our company first started we rented space, first in some garages in Wilmington circa 1940's and then later when we started our garden center. In the late 1960's, we were thrown off the rental property because the owner wanted to build houses. We literally had to relocate everything to a new site that we rented until we could find a property to buy."
Jamison says his company learned a great lesson: to look ahead and buy the property when you have the opportunity. "However, now we are in a great location that has and will continue to serve our needs," he assured.
Ellison Greenhouse purchased its facility. "Leasing wasn't an option, and the reason is because we're a growing facility. Sometimes, if you need lines of credit, etc., you have to use the land and buildings as collateral," Ellison said.
While responses varied, growers did seem to agree on the fact that every situation is different. "Depending on your income, it may be more beneficial to lease as it may put more disposable income in your pocket because of the tax implications," said Knapton. "You may be able to reinvest that money and generate an even greater return." Ellison advised, "I think any business owner just needs to really look at what makes the most sense dollar wise, time wise and other resource wise."