# Starting an excavating company?



## zraffz

Hey guys, I'm new to the forum but I'm not new to machinery. My dad owns a small 3-5 man excavating company for the past 15 years. I've been running machines for the company for about 5 years.

I'm young (just about 21 and still living at home so I don't have many bills to worry about) and completely baffled by where to start. I no longer talk to my father due to family reasons and prefer not to get into that. I have been left alone with nothing but a set of septic plans many times and am no stranger to them. Obviously, I will not know where to start with bids but that's the least of my worries - I can always get small jobs from my older brother (who owns a landscaping company and turns down small excavating jobs that he doesn't want to do).


I'm interested in starting a very small excavating company with the intention of expanding if given the opportunity. I have $9,000 in my savings account and a thousand or so in my checking. I'm looking to start purchasing some stuff within reason; my uncle has talked to me about borrowing money to do this if I need extra funding but I'd prefer not to borrow anything. I'm currently studying to get my CDL for the local DPW anyway.

As far as a business I will be able to get some starter jobs from my brother's company but what do I want to purchase as far as equipment goes? I've been looking for a mason dump (actually going to go look at a 1995 K3500 mason dump tomorrow; can get a heck of a deal on it if it isn't rotted). A family friend has a small 9-10,000 lb excavator from the mid-late 90's he's willing to sell me for 8 grand. I can convince big brother to let me borrow a dump trailer (along with any other tools I don't have) to transport such a machine until I get money to buy a trailer.

I figure the machine is capable of stumping, trenching, prepping for walls, and doing test holes. What else should I be looking into getting to help start out? I'm really trying not to dive into this blindly and I know all of this is only about 10 grand but that's just about my life savings... at $12 & $10.25 an hour/7 days a week that took me a long time to save up. Whenever I don't have my own jobs I can still fall back on my part-time DPW job and my brother can always use me part-time for mowing.


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## HUI

I started very similarly to you in 07. I worked for my father we butted heads one too many times. I worked for a competitor for a year then started my own. I first purchased a used F-350 and a heavy-tag trailer. This was so I could rent a variety of equipment and get it to the job. I rented a JD 50D excavator with the option to purchase. I rented the excavator for 6 months before I bought it. Then once I had the cash I purchased an old beater dump truck. Then I bought a heavier trailer to move larger equipment. 

I have bought a lot of stuff for the job at hand such as generators and pumps etc. I started my company in 2007 and I purchased my excavator. I bought trucks and trailers and last winter is when I purchased my wheel loader. The best advice I can say is to rent when you can. In my area, there are lots of places to rent equipment. Save your cash. 

Stay out of debt. Try renting the equipment first to actually see what works best for the type of work you do.


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## Little

Wow you are probably one of the first new guys on here that has an a really good idea on what he wants to do. Most guys sign up, ask what do i need how much do i charge for this and that etc. I agree with the guys on just renting machines for the time being. I'll just give you some advice. 

Always remember to think about safety first, be smart. As If you don't already know most accidents in this business do not require a band aid and smack on the knee. When digging around utilities always take your time, sometimes when trying to find a marked out utility such as high voltage electic/gas/water it could take you all day, then you take all day to find it as much as the dollar signs may be ringing in your head to go go go. 

Hang around the site, search the past threads you will find a ton of info about your same situation.

Little


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## CanDoExcavating

I started cold in 04 bought a ex200 hitachi, a case 580k hoe and a 260 Deere skitter. Did 7 basements my first year, good thing I worked nights at a meat plant. The next year I did 35 basements, this is all word of mouth. All I can say is if you are honest fair and do good work word travels. Good luck!


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## zraffz

Thanks guys, I can stay out of debt and not completely break my bank account if I started with the mason dump and little excavator. I have been checking statements and my savings has just under 9 grand and my checkings is just under $1,000 and I have about $400 sitting at home.

The truck is missing the motor, trans and transfer case but I have built a few cars and am no stranger to the work and cost involved in purchasing what I need. (I actually have the same motor that belongs in the truck sitting on my engine stand). He wants $1200 for the mason dump and I figure with another $500 I can get the trans and transfer case. Even if I go into the truck for 2 grand overall, I can't beat it for a clean truck.

The guy told me 8 grand for the machine but I'm sure their is a little wiggle room. I can get all this and still keep some money in the bank (as it sits now I do $580 a week after taxes so I think I can recoup a little money quickly).

My brother said I can go under his insurance if I pay the difference for adding digging coverage (around 3-4 grand a year). I'd like to stay under his company's wing as long as I can. If i figure in $500 a month in insurance on digging and the truck, as long as I can run the machine at least 2 times a month I can at least just about break even after paying fuel and insurance... which for a new branch off the company wouldn't be too terrible.


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## tgeb

You haven't said what the excavator is or how many hours are on it or its condition.

A 14/15 year old min ex could be pretty well used up.

I, like the others posted above, would recommend renting what you need as you need it. Work the rental costs into your pricing.

But since you state that the ex is owned by a family friend maybe he would lease it to you for the first few months.

You could pay him say, $1,000 per month, pay the first 3 months up front, so he knows your serious, in those 3 months you will either sink or swim. If you do well you'll have the other 5K to buy the machine.

Keep as much cash in your account as you can, you never know when you'll need it. A few repairs can eat away at a checking account. :sad:

Where are you located?


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## zraffz

I've ran the machine before, I don't remember the make or model but it's around 8,100 lbs if I recall. It had descent power to it the last time i used it.

I'm from new jersey.


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## tgeb

OK, so you have a good feeling about the mini ex you are looking at.

Do you think the seller would agree to terms as I outlined earlier?

Do you know what it takes to run a profitable business? If you have not looked over the business section of this forum, you should. There is a ton of information there, and you would be well advised to spend some time reading posts, and learning from some of the best minds in the industries.

http://www.contractortalk.com/f16/

I wish this forum, and the knowledge that can be attained just by sitting and reading, were available when I started out.....


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## zraffz

tgeb said:


> OK, so you have a good feeling about the mini ex you are looking at.
> 
> Do you think the seller would agree to terms as I outlined earlier?
> 
> Do you know what it takes to run a profitable business? If you have not looked over the business section of this forum, you should. There is a ton of information there, and you would be well advised to spend some time reading posts, and learning from some of the best minds in the industries.
> 
> EDITED
> 
> I wish this forum, and the knowledge that can be attained just by sitting and reading, were available when I started out.....


I'm confident in the mini excavator and I'm 99% sure he would agree to renting with the option to buy. I will be looking into the business section of the forum since I have never operated a business. I am seeking the advice and guidance of you guys along with my brother (who does 50-55 lawns a week and hardscapes) after 2 years of business. I'm open and willing to listen to all advice.


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## PipeGuy

zraffz said:


> ...I'm interested...expanding if given the opportunity.


No one will give you anything. Don't assume such a thing.



zraffz said:


> ...I will not know where to start with bids but that's the least of my worries...


It shouldn't be the least of your worries. Figureg out how you'll bid your own work.



zraffz said:


> ...I have $9,000 in my savings account and a thousand or so in my checkings. I'm looking to start purchasing some stuff..


Rent whatever you can. Save your cash for things you can't rent like payroll and supplies.



zraffz said:


> ....my uncle has talked to me about borrowing money to do this if I need extra funding but I'd prefer not to borrow anything


Being able to wisley borrow is essential to a businesses successful growth. Do everything you can to establish credit.



zraffz said:


> ....What else should I be looking into getting to help start out?


A cheap mechanic who knows what he's doing (maybe `A good transit or level with grade pole. A good laser beacon and receiver.


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## peteo

We rent all kinds of stuff. Excavators, dozers, loaders, target saws, whatever. the cost to go and buy all this equipment is astronomical and isnt even remotely practical most of the time. I do all kinds of grading yet I dont own a dozer. I see no reason to spend $50k on a machine I may use 5 times a year. Renting is the way to go and all you do is work the rental cost into your bid. We are a small company and dont have the financials that some of the other guys here have so we do what we can to keep costs down. For example, just today my brother and I were debating whether to buy a rockhound or not. We put a lot of lawns in every year but spending almost $10,000 on an attachment seems a bit expensive when I can rent one for $150 or less per day. At that rate I have to put in about 60 lawns just to break even on the rental charge. Definitely check out the business section though. I for one have gotten some great info there that has really helped out. Good luck to you, its tough out there.


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## zraffz

Already own a laser transit, I have a descent amount of knowledge on the hydraulic systems, changing bushings, and servicing heavy machinery. My dad and I used to fix them together. I am confident in having a good feel for the skilled part of the job (like I said I've been raised doing this stuff) but as stated - a tradesman doesn't necessarily make a good businessman; especially with zero business experience.

I figure a machine this size around here gets rented for $380ish a day. After 21 days of working operation the machine has paid itself off... that's the only reason I'm having difficulty grasping the rental part of all this. I don't care if I take zero salary for the initial jobs, as long as I can cover fuel, insurance and overhead I'll be happy until everything is paid off. I'll still be working my two other jobs anyway. If I can get even two days of operating a month I can pay off machine payment, fuel, and insurance... if I were lucky enough to get more work in a month the rest goes into the bank. Is this a bad theory for a business that is starting out? As long as my butt is covered and my stuff gets paid I'd be happy (at least until everything is paid off).


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## tgeb

You can do what ever you wish, it's your money.
The advice you've been given by guys who have been down this road recommend holding back your cash.
Also get some business knowledge.

I started on a shoestring, with less money than you have now. But that was 1986 and the economy was very different than it is now.
I've learned more about business from this site than the many years flying by the seat of my pants.

Pay attention!

Check out the video below.

I am surprised PipeGuy didn't think of this one.


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## backhoe1

I have a different philosophy than the others above. I started out in 2006 with nothing, I mean I didn't even have a down payment to put towards a machine, But I was able to establish a relationship with a banker that believed in me. 
When I was first "Marketing" my new business, Everyone kept asking "what kind of equipment do you have?". What would they have said when I answered "well, nothing but I could rent what I need"

Around here every Tom and Joe thinks they can rent a machine and do anything. I've found that having a lot of equipment with my name on it has gotten people's attention which has in turn gotten me alot of work.

I myself don't rent anything unless I feel I'll only use it a few isolated times.


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## zraffz

backhoe1 said:


> I have a different philosophy than the others above. I started out in 2006 with nothing, I mean I didn't even have a down payment to put towards a machine, But I was able to establish a relationship with a banker that believed in me.
> When I was first "Marketing" my new business, Everyone kept asking "what kind of equipment do you have?". What would they have said when I answered "well, nothing but I could rent what I need"
> 
> Around here every Tom and Joe thinks they can rent a machine and do anything. I've found that having a lot of equipment with my name on it has gotten people's attention which has in turn gotten me alot of work.
> 
> I myself don't rent anything unless I feel I'll only use it a few isolated times.


That's the same way my old man thinks. He used to spread his machines around the county preparing for jobs. He had a clever company name and whenever people would see me in shirts they'd all say how the see the machines everywhere... great advertisement. He started off with just a Case 580E and has grown to a 4-5 machine company.

I'd rather outright own the machine, truck, and trailer. For the price I'm paying for the truck and machine I figure I can always get my money back (if not profit off them) if I throw the towel in. How many mason dump 1995 6.5 turbo diesel 4wd 3500's can you find in good shape for $3500 into them? They seem to be going for about $5,500-6,000 here. It baffles me why I would want to rent when I can outright own it and make more money instead of starting off on the wrong track.


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## CanDoExcavating

I agree with backhoe1 !


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## CatD8T

There are few more things to think about here:

Are going to try to get a loan from a bank? Not as easy as it used to be. Always worth talking to the small business administration, they are helpful. (Heck, you've been paying taxes, why not use them?) You will need a good business plan if you are approaching a bank.

When you are thinking about buying or renting, you need to look at equipment utilization. Companies big or small, this is very important. Starting off doing small projects, truck and trailer are going to be used heavily (purchase). Dozer will be less likely to be used full time (rental). These are just random examples. You don't want to be making a payment on something, or maintaining a piece that isn't turning over revenue.

Since you won't have a database of costs (or history). You are going to want to use rental rates to use in your bids. Add in fuel, insurance, etc. Use the list rates and then try to negotiate a reduced rate with a rental company. This will keep you covered in your bids (for equipment).

Watch who you work for. Since you are going to be doing small projects, try to negotiate an upfront payment of say 50%. The other 50 due upon completion. Don't get into a 30 day payment term period.

As a general rule, you want 3 months of operating savings in the bank. Generally includes: payroll, fuel, etc. Actual job costs such as materials are not included in this amount as long as you can get credit from vendors. If you can't get an account, you will have to include into the 3 mo. savings plan. This is a general rule though, a lot of this has to do with customer base. I know guys who started with nothing, but were working for well paying customers and they made it work. I also know some who had 10x this amount, worked for some bad people, and they are no longer a business owner.

Last, know what you do well and what you don't do as well. Don't let ego take over. Find your strengths and focus your bidding on those areas.

Good luck.


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## mudpad

PipeGuy said:


> Rent whatever you can. Save your cash for things you can't rent like payroll and supplies.


I think this is the best advice you have received here, especially if you are just starting out. I have seen too many excavation company owners become full time mechanics because they have tried to start out with a bunch of worn out equipment. You are much better off to bid work base on rental rates of equipment, and then get it done and get that equipment back asap. 

I work for a medium/ large commercial general contractor, and with rare exception we have never owned anything larger than a generator and small tools. We figure equipment rental in our bids. 

What invariably happens is that you own a worn out trackhoe, dumptruck, etc. and it breaks down, and then you have to rent a replacement to keep the job moving along while you, or a hired mechanic, work on repairing your old worn out equipment. Rent good quality stuff, and if it breaks down, tell the rental company to get you a replacement out there pronto. Much better strategy. You just gotta be really careful about keeping up with rental, 3 days= a week, 3 weeks= a month etc. I keep all the dates on my equipment on an old fashioned calender on the wall in front of my desk so that I know when to call for pick ups. 

Like I always say about large excavators who own a bunch of equipment, they are out of business five years before they know it. :whistling


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## PipeGuy

mudpad said:


> Like I always say about large excavators who own a bunch of equipment, they are out of business five years before they know it.


Excavators who own lots of equipment are as much rental companies as they are excavators. The difference is they only rent equipment to themselves. The guys that can do this spend years, often over multiple generations, building up their assets to the point they're able to make owning a lot of equipment a viable business strategy. And even then they are generally EXTREMELY disciplined about what they buy. Some true words of wisdom, amongst many others, include:


CatD8T said:


> ...When you are thinking about buying or renting, you need to look at equipment utilization. Companies big or small, this is very important.


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## zraffz

The machine I want is in real good condition, I looked it over and tested it. Like I said it's a family friend and he's more or less trying to help out. I am waiting to sell a few of my toys, should get around 3 grand for them. I have around 10 grand overall in the bank right now but will not be using all that money. My bank is my aunt, interest free loan up to 10 grand also.
My plan is to outright buy a reliable mid-late 90's mason dump ($5-8,000) which should leave me with a minimum of 2 grand in the bank (5 grand pending sale of my toys). Then I want to half the machine and trailer with my brother (I will be the only one operating it though and I will still get $25/hour) and borrow my half of the money from my aunt ($5,000). I talked to her about it and told her I can have her money back to her in a year ($415/month). I priced out insurance on digging to be roughly $300, truck should be around $250. $965 a month in bills and I will have 5 months covered in my savings account if I fail to have enough money to make my payments.

I've talked to a local contractor and he told me he'd be interested in kicking me some work... same goes for a local electrician. In the future I'd have the option to buy my brother's half of the machine for it's depreciated value.


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