Category: Steel Detailing Blog

This will give you an insight into our decision making process at Tek1.

We are investigating the feasibility of purchasing Trimble surveying equipment. Total Station etc. For internal use only.

* Cost of equipment: $100,000 + subscription software / maintenance.

* Cost of renting: $500-800 / day

We have $0 revenue coming from surveying, moreover we are not licensed surveyors. It will not be easy competing with professional surveyors. Unless we have a significant advantage in acquiring customers, it would not make a lot of sense competing with the professional surveyors.

What would you do? Buy or purchase? Or use a professional?

Given a choice of renting vs buying – we would rent – because:

* we would need 125 days of rental utilisation ($100,000 / $800 per day) before it becomes and profitable to purchase this equipment vs renting:

* prefer for Tek1 to be well capitalised by retaining cash – i.e. it is better for the cash to be in our pockets rather than Trimble’s.

* This is a mutually exclusive decision: if we purchase the surveying equipment, that will limit our ability to get into some more profitable arenas.

If we owned, we would have to maintain it. It could break, or get stolen etc.

But even better than rolling our own: should we get a third-party surveyors

• The benefit of rolling our own is that we will have intimate detail of all things pertaining to surveying – which will (potentially) allow us to deliver a better product. But it comes at a cost:
• Cost: you’ll have to pay more for a contract surveyor – but then they take care of everything: machine, licenses, transport, and deliver a final output to you. Benefit is that you save time. And you don’t have to learn the nitty gritty. i.e. finding that menu options buried deep in the Total Station equipment. We can focus on what we’re good at, at let others focus on what they’re efficient at.
• Cost: you will have to coordinate with them (vs coordinating internally. It’s tough to find a good one.
• Hidden benefit: as a customer, you can “learn” some hidden tips your surveyor. Most will be happy to help, so long as you don’t burden them.

Aside: Renting is similar to borrowing

Imagine if I borrowed: $120,000 and repaid the loan over the course of a year.

Cash flow from borrowing:

• $120k – January
• $120k – February
• …etc.

Now let’s look at the cost of renting at $120k / month but also getting ownership of the final product at the end of the period

• $120k – January
• $120k – February
• etc

You’ll notice that they look quite similar. You can think of renting as also borrowing money, and repaying – and if you rent short term, it’s like borrowing, repaying, and not getting an ownership interest in the underlying asset. If you can immediately end your rental, then it would be the equivalent of borrowing, purchasing an asset, and then reselling it when you no longer need it – with the rental provider doing all the work for you. i.e. it essentially allows you to take on debt, without explicitly declaring it on your balance sheet (all of this subject to the accounting rules and practices in your jurisdiction).

Clients often ask me: “do you have professional indemnity insurance” (PI Insurance)? The short answer is “yes” we do. It isn’t cheap: we pay over $20,000 per year in premiums – last year was about $27,000. But the long answer is, while we do have insurance: you cannot rely on it.

Here’s why:

• Insurance companies are not in the business of paying out. Their business model consists of collecting premiums (up front), re-investing those premiums, earning a return on the “float” as well as profiting from any claims that are not paid out. In order to minimise their costs, they are incentivised to fight claims.
• The procedural / documentation issues: in getting a pay-out is very high – it is almost impossible for anyone to meet these requirements. If a claimant cannot access the insurer’s honey-pot, then you’re stuck without a paddle.
• Subrogation: You’ll have to claim from me, I will be required to notify the insurance company, and then they will grab the steering wheel off me and takeover – i.e. “subrogation” occurs. Since the insurance company is the one who will be paying out, they must necessarily do this to safeguard their interests.
• The costs of pursuing a claim are very high.
• If there is a successful payout – such firms will be black-listed in the insurance market, they won’t be able to get insurance, consequently they may have to go out of business. The mere existence of a firm, lasting 15 years, is indicative of their quality.
• At Tek1, we limit our liability.
• Building and construction is usually collaborative endeavour. If a project goes wrong, everyone gets dragged into the fray. Most firms cannot afford to pay for the costs and mistakes of third parties.

In summary, while we have insurance, both you and me cannot rely on it.

The best protection is prevention: mitigate risk, and take care, and ensure all parties are equally vested to achieve the desired outcome.

There is no point being “a busy fool”. If you’re winning jobs at a loss, or at really unattractive margins – things are probably not going to go well for you.

It is critically important that you collect a deposit:

• So that your client is on the journey with you. i.e. you are both incentivised to reach the same outcome
• So that you can pay your suppliers (on time).
• So that you are not held to ransom.
• So that you can actually do the job, to the standards which you are attaching your name / reputation to.
• So that you don’t have to BS people – so that when you say you will pay, you can actually do so.