Wednesday, September 10, 2014

The 8 Key Fire Truck Money Questions - #1

If you want to buy a fire truck, you have to navigate 8 financial questions

Over the next few weeks, we'll look at each of these questions in more depth to help you answer them and avoid making mistakes around one of the largest financial decisions you'll ever make.

Question #1 - When should we buy the truck?

Or to re-phrase, should we buy the truck now?

This question has a functional component to it - the truck needs major repairs, it's unsafe, or we can get parts, etc.

But our focus is on the financial aspect of this question.

And financially, this question boils down to:

How does this purchase impact our current budget & plans and how does it fit into our future financial strategy?
In other words, can we absorb this purchase now and set ourselves up to get the next truck (or other major project like a fire station or paid staff) later?

This is a key question.  Maybe THE key question.

It either sets you on a path toward a safely equipped department adequately funded or on a path toward older, unsafe trucks being used way past their safe life.


Summary

This is the key question to ask.  Many departments simply wait and address this question on the functional merits - our old truck can't get parts, for example.

Rather, this question should be asked as part of the big financial picture of your department to ensure success.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, September 3, 2014

Fire Truck: Justify the 2nd Truck, Part 3

It all comes down to the numbers

Over the past 2 weeks, I've explained that buying a 2nd (or more) fire truck is a justification decision, not a budgeting or financing decision.

The justification question to answer is:
 Does it cost less to buy the 2nd (or more) truck now with the truck we are already buying or does it cost less to buy the 2nd truck later?

Here's how to do the math

Last week, we showed that your council only has 3 no-buy options - wait & do nothing, save up to buy the truck, or repair or refurb an existing truck or buy used.

The math equation for each no-buy option is:
  • Wait.  Show the cost of waiting.  For example, how much more will the 2nd truck cost by waiting.  Truck inflation is costly and waiting even a few short years can mean the truck will cost $50,000 or more.
  • Save.  This option is based on the belief that it always makes sense to not borrow and pay interest.  But the assumption is that the truck inflation will be less than the financing costs.  It regularly is not true.  A $300,000 truck will cost $50,000 more in 5 years but buying and borrowing today will cost only $26,000 in interest.  It saves $24,000 less.
  • Repair, Refurb, Buy used.  This option is based on paying less money upfront.  But with these options, you are buying a shorter useful life rather than paying more for a new truck.  The calculation is to compare each option (new versus repaired, refurbed, or used) on its annual cost.

Don't know how to do this math?

Don't worry.  The free Fire Truck Justification Kit has calculators and articles to help do the math for each of the 3 no-buy options.  You can get your free kit by clicking here.

Summary

You can build a strong financial case to replace the 2nd truck when buying the first truck.  A strong case includes the math for the cost of buying and not buying. It means helping your council understand the costs of all the options.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, August 27, 2014

Fire Truck: Justify the 2nd Truck, Part 2

Resistance is inevitable

Your council will likely be resistant to buying a 2nd or more fire trucks, even if you need them.

Last week, we explained that getting a 2nd (or more) trucks is a justification, not a budgeting or financing decision.

And that the primary justification question is:
Is it cheaper to buy the 2nd truck now or buy it later?

Here's the resistance you'll get

There are only 3 "no-buy" options and your job is to discover what your board or council wants to do instead of buying.

Your board can only:
  • Do nothing.  Just wait to buy the truck later.
  • Save up.  Start saving to buy the truck you need now at a future date.
  • Repair or Refurb.  Add some life to an existing truck by investing in it.
 Once you understand the "no-buy" plan your council has, you can develop a financial case to answer the primary justification question.

We'll do the math next week.

Summary

Rather than just accept a vague decision to not buy, dig into the option your council would do instead of buying.  Each has its own math to answer the question.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, August 20, 2014

Fire Truck: Justify the 2nd Truck

Everyone's in agreement to buy a new fire truck.  The problem is:  You need 2 trucks right now.  Or 3. Or 4. Or even more.

How do you get the council/board to buy the 2nd truck?

It can be simple and we'll break down the steps how to create a financial case for buying more than 1 truck.

We'll only discuss the financial parts.  You are more prepared to explain the operational reasons to replace the 2nd truck.

First, understand the financial decision for what it is

This is a justification decision, not a budgeting or financing decision.

The key question you should be helping your board to understand is:

Does it cost less to buy the 2nd truck now rather than buying the 2nd truck later?
When you understand that this is the question that needs to be answered at this point of the purchase process, the rest becomes easier.

In the next few weeks, we'll talk about how to do the math and how to handle the financial objections.  Stay tuned...

Summary

The first step to successfully justify a multi-truck purchase is to diagnose correctly what you are trying to do.  And that means knowing what question you are really answering at this time (you'll get other questions that should be answered later).  The key is to guide your council or board with the right information at the right time.

Stay safe!
John R. Hill
President
First Bankers