Know the environment of carrying debt

Last weekend my good friend had the occasion to operate a skid steer. He’s a land developer and asked the road builder he hired (a friend of his) if he could use the skid steer to clear a little bush trail on the lot at the end of the road. He knows how to operate the equipment but is not a “professional”. It was 2 pm on Friday and the road crew were off early. He was all alone. While taking down a small tree (2-3 inches), the branch caught between the arm and the body of the skid steer. By sheer fluke (1/million) the branch bent around and into the arm where a hydraulic hose was held. The branch pinched the line and restricted the flow of fluid. A sensor tripped and shut the hydraulic system down while flashing the yellow warning lights in the cab. With the hydraulic system disabled he couldn’t lift the arm to release the pressure and reactivate the system. A classic Catch 22. What made the situation more complicated was that the door would not open more than an inch… because the arm was too high. Finally, and not the least of his problems… his cell phone was 100 feet away in his truck.

We often find ourselves alone in situations that can easily be defined as innocent. We convince ourselves that there was “nothing we could have done to prevent it”. We stand as a victim of random circumstances. Who can foresee random events and the consequential falling dominoes? Random events such as… a Pandemic. How many people will lose their businesses and even their homes, cars, cottages due to a virus? Nobody could have predicted our current circumstances back in October 2019. 

However, we don’t need to know future events to be prepared for most of them. 

I have been advising clients financially for several decades. Businesses have inherent risks that cannot be predicted beyond a moderate level of accuracy. But too often I see new operators purchasing new cars, boats, and toys after only six months as an operator. Over leveraging (too much debt) creates a situation where even the slightest shift of circumstances can cause negative domino consequences. They assume risks based on unprofessional assumptions, “how yesterday was… tomorrow will be”. One miscalculation and they are locked alone in a metal vault. Far too often I see drivers and operators make debt choices that must be slowly repaid over a lonely decade.

Yesterday I sat with a client for nearly two hours. He was considering what his options were on his truck. He has a company lease that will be complete in November. He saved up nearly half of the value of the payout and asked if he should use it to purchase a new truck or buy out what he has been driving for nearly four years. First off, I must admit I get very few operators asking me advice when considering “upgrading”. It’s only about 2% that ever ask advice. In the defense of some, they already know the advice I give and don’t need to ask me. Most, however, find out my opinions after they signed away the next half-decade. I was honoured to advise him on the best path for his financial future.

Debt is a serious multiplayer of negative circumstances. It will lock you in a metal vault. Too many people think that banks and financing companies won’t lend to you unless it can be safely repaid. That is simply not true. It’s a fine and fuzzy line. It’s usually safe for the lender, but not necessarily you, the borrower. Every operator (and Canadian for that matter) must learn how to evaluate ALL debt risks in life management. Not just in truck financing but also in home, car, furniture etc. If you consider the future choice between a $30,000 engine rebuild and a $180,000 truck debt you must evaluate the five years of debt one choice has, versus the 12-18 months of the other. If someone uses debt, they should be in panic mode until they are free of it. Peanut Butter and Jelly until the final payment. The goal is debt-free living, not continual revolving payments in life. The older you get, the less debt you should have. 

Debt-free living is like having a usable cell phone in a metal vault. It’s freedom! 

My friend did get out of the skid steer. By turning the key on and off over an extended period he stumbled across a setting where he could slowly drive with limited hydraulics. He crawled to a neighbour and honked his horn for ten minutes… they came out and graciously pried out the branch from its pinch. It took a few hours, but he got home. He found out some skid steer rules; always carry your cell phone, always have someone know where you are, never operate alone. Know the risks and vulnerabilities of your equipment and environment. An ounce of prevention and protection is worth a pound of loneliness.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at robert@thrconsulting.ca.