Wednesday, August 3, 2016

Why bad financing happens to good fire departments - The final chapter

 This is a true story.  The name of the department has been changed to protect them.

And this is a different department from the one shared over the past few weeks.

Bad financing is not only about saving money.

It's also about not making a strategic financial mistake.

I received a call from a new chief  whose last chief had financed a new truck in 2008.  The last chief had financed the truck for 15 years and did not put any money down.

Fast forward to 2016.  The new chief is left with a truck that has some issues.  He would like to just get rid of the truck and upgrade to a newer truck.

But the last chief hurt the new chief.  The balance owed on the truck was more than what the truck was worth.  So, the new chief could not refinance it or sell it and pay off the balance.

So, the new chief is stuck.  Stuck with payments on a truck which is unreliable.  He will have to make 7 more payments before its paid off and maybe then can replace the truck with something that works.

Summary

Bad financing happens when you don't think of the now and the future.  The old chief was focused on getting a truck without any down payment and the lowest payment amount.  But that strategically hurt the department for years to come.


Stay safe!
John R. Hill
President
First Bankers

Wednesday, July 27, 2016

Why bad financing happens to good fire departments - Part 4

This is a true story.  The name of the department has been changed to protect them.

It's simple.  You don't finance a fire truck every day.

It's enticing to think that fire truck financing is just like financing a car or house.

But it's not. A car or house only has a few options.  Make a few simple decisions and it's easy.  And interest rate is a decent way to compare offers.

Financing a fire truck is more complex.  There are more options, more choices to make, and more chances to make a mistake.

A car or house only has monthly payments. And the payments begin right away.

A fire truck can have annual, semi-annual, quarterly, or monthly payments.  And you can select when the payments begin.

And this is only one example of the differences between financing a fire truck or house or car.

In fact, fire truck financing has 7 options that you should consider or you will miss something.


And, if you miss something, it'll cost you lots of money.

Summary

A 1/4% lower rate will save you $25 for every $10,000.  So, even getting a low rate will save only a little money.

But, if you consider and analyze each one of the 7 options for fire truck financing, you can save thousands.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, July 20, 2016

Why bad financing happens to good fire departments - Part 3

 This is a true story.  The name of the department has been changed to protect them.

Here's why they almost lost $60,000

They never ran the numbers.

The fire department felt they laid out a sound financial strategy.  They were financing their truck within their payment budget so they thought it would have to be13 years.  And, they were planning ahead by setting aside $20,000 per year for 15 years so they would have $300,000 saved by the time they need their next truck.

We ran the numbers for them.  We showed the fire department that increasing their payment by the $20,000 they had planned on saving reduced their financing term from 13 to 7 years.  So, they pay off their truck 6 years earlier and the shorter term saves them over $60,000 in interest.

Also, after they pay off the truck, they could save the full payment (their budget plus the $20,000) for the 8 years afterward. And they would have $526,000 saved up when they need to buy their next truck.  Thta's $226,000 more - almost double what they would have had saved.

Summary

When financing a fire truck, it's easy to get focused on the plan and miss major opportunities.  Ask your banker how to do things better.  If they can't offer any ideas, try someone else.  There is always a different way that may offer some dramatic results.

Stay safe!
John R. Hill
President
First Bankers

Wednesday, July 13, 2016

Why bad financing happens to good fire departments - Part 2

This is a true story.  The name of the department has been changed to protect them.

What did the fire department say that helped them save $60,000?

Everyone who calls me has the same conversation.  They ask about interest rates, tell me how much, if any, they have saved for the down payment, ask about paying off early, and mention either a payment budget or how many years they want to finance their truck.

And most bankers will answer their questions and stop there. 

And as I mentioned last week, the fire department will find a 1/4% lower rate that will save them a few hundred dollars.

But what if the conversation didn't stop there? What would happen?

Financing a fire truck is what I call a 3D experience.  What I mean is that financing impacts your fire department now... and in the future.  Most callers ask 2D questions like the ones above.  It's only about now.

Also, financing plays a strategic part of every fire department's history.  If you make a mistake, a future group will have to live with the decision you made today.


So, what did the department say?

The 3D question I asked was "when will you be buying your next truck?"

And the department answered in 15 years.  And, that they were saving $20,000 per year so they would have $300,000 by the time they buy their next truck.

This was the start of a very big revelation for the fire department.  

Summary

Financing a fire truck is complex. It involves much more than the "here and now" questions.  When more information is shared, the results can be very dramatic.

Stay safe!
John R. Hill
President
First Bankers