Let’s talk about you, the National Driller reader, for a moment. We’re an equipment magazine, so we naturally have a lot of discussions about when and why our readers buy the equipment they use.
I read a lot about the economics of budgeting in small companies. Yes, I could use to get out more — maybe see a movie, spend time with my kid, read some fiction, whatever. But I actually enjoy it, so when I get a few minutes to myself I read books like “Profit First” by Mike Michalowicz. I won’t go into too much detail about how he views small-business budgeting, but I encourage you to check out his book and ideas (with an open mind).
I digress. When we talk about when you buy equipment, maybe we should start with what a smart, proactive business might do.
Planning Ahead
Proactive businesses plan ahead. You may say, “I’m working job-to-job here. How am I supposed to plan ahead.” My question is: How can you afford not to?
I write in our September cover story about a startup that just made it over the two-year hump. Michael Cox of PalmettoINSITU tells me, like every one of you likely would, that when something goes awry with a rig, the repairs start with three zeroes and go up from there — and he just runs little geotechnical drilling rigs. One can only imagine what the repairs on a big pile rig look like.
But Cox plays it smart, and it’ll probably mean his business will last a lot longer than two years. He reinvests a lot of his revenue into equipment. We didn’t get into the weeds about his tactics and how much he reinvests or sets aside for big future expenditures, but the point is he plans ahead.
Michalowicz would probably recommend building capital expenditures into the budgeting system of your drilling business. That means taking a percentage of your revenue and plunking it into an equipment fund. The amount is really up to you, the size of your business and the size of your expected future outlays. But, for the sake of argument, let’s say it’s 10 percent. Each month, add up the revenue from all those jobs you and your rig work so hard at. Move 10 percent of that amount to a special account. If you don’t have much discipline (like me), make it an automatic transfer to another bank — an account you don’t have a business debit card for. Make it tough to get to, so you’re not tempted to borrow from your business’ future if you have a lean month.
Years go by, and when you decide you need a new rig, that 10 percent can add up to a nice down payment — and when you have more equity in your equipment your business is healthier as a result.
The Wish-I’d-Planned-Ahead Mentality
The advice I’m discussing here likely applies mainly to small contractors — the base of the industry that hovers under the big regional and national players. Those guys have their own systems. Those guys have CEOs and accountants and fleet managers that get paid handsomely to make sure a company can get the job done and get it done every time.
Small companies may not have that. Small contractors might have a dozen employees or fewer. Small companies hustle harder — for every contract and every dollar. It’s the planning ahead that makes sure all that hustling pays off in the form of a company that lasts.
Equipment isn’t cheap. Heck, even a lot of used, high-hours rigs can start in the low six figures. In my example, lopping 10 percent off your revenue hurts. Over time, though, you adjust and the 90 percent that remains becomes the new normal. You’ve learned how to run your business on less so when that big capital outlay comes (and it will) it doesn’t hurt quite so badly.
Planning ahead isn’t easy. Who said being a drilling contractor would be? But planning ahead beats wishing you had, every time. Whether you’re preparing for that unexpected three-zero repair or laying the foundation for a new six-figure geotech or foundation rig, consistent budgeting will help ease the pain and help your business stay healthy in the long term.
What Do You Think?
There are as many different ways for running a business as there are businesses. Are you a small, one or two rig drilling contractor? Do you budget for large equipment purchases and unexpected repairs? Why or why not? If you do, what’s your system? Let us know. Send me an email and share your advice for other contractors.
Stay safe out there, drillers.
