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Monday
Nov282016

Making the Right Purchasing Decisions

This article, by Dennis Kissman, was published in Marina Dock Age –  November 2011

I think it is a fair statement to say that everything that makes up a marina will eventually wear out, break down or become obsolete.  If you agree with that statement then when it becomes time to add, upgrade, replace or do nothing you need to ask yourself am I making the right decision, is it the right time and for the right reason.  This is what I refer to as the “decision making process.”

There is no one right answer, each situation must be judged on its own merits and circumstances.  Too many marina owners do not think of all the consequences when making some business decisions relating to their facility and as a result these decisions often fall short of expectations.  If too many of these business decisions are made in this manner the business will not achieve its economic potential and will eventually fail.

There are too many possibilities to address in this one article.  It may be best to use some examples to explain this thought process when making physical changes in your marina but first, there is one thing that will always have an influence over the decision making process and that is how is it going to be paid for.  Unfortunately, if money comes into play too early in the decision making process the end result may not be what is expected or best for the property.  I mean this in two ways; if you have unlimited financial resources it can be just as instrumental in making the wrong decision as having too few funds available.  The key is to striking the right balance between funds and needs.

Here are a list of thoughts that should enter into your decision making process.

-If what is being installed is buried underground or behind walls where it will require additional costs to get to when something goes wrong, and it will, I look for the best product available and make sure that it is installed right.  In this case top of the line is better than average.

-Separate “nice to have” from “must have to maintain or improve cash flow.”  “Nice to have” is part of your wish list and does not belong on your maintenance list.

-If safety of staff or customers is an issue that has to have the highest priority regardless of cost.  If you think because you have liability insurance you are protected, think again.  If your insurance company finds you neglectful in maintaining your property they can deny any claim made against you and your business.

-Select the right tools and of the best quality to maintain the property.  Poor quality or inadequate tools will shorten the useful life of the marina’s equipment and facilities.  If you do not have the right tools to properly maintain your equipment and facility, inevitably short cuts will be taken when performing maintenance thus reducing the expected life of what is being worked on.

-If for three years in a row you spend more per year on maintenance than the annual depreciation expense of the asset consider replacing the asset.

-If you have more than one asset that is the same and parts are starting to fail, cannibalize the assets and replace only the number of like assets that are necessary.  An example of this is sectional floating docks.  Let’s say that one section has a bent frame while another section has a bad float.  Combine the serviceable parts into one and only replace one section.  You may find that you do not even need that one section and not have to replace it.

-Just because technology has changed from what you currently have it does not necessary mean that it is better or will last longer.  Look for a proven track record over some slick advertisement telling you how good something is.

-If you request competitive quotes for something, and you always should, be specific in your request.  If it is not in writing and in a manner you understand do not assume. Ask questions and get clarification before signing that contract or purchase agreement on the dotted line.

-Be sure that by extending the useful life of an asset that it will not become obsolete before the end of its extended useful life.  A good example of this is what happens with docks.  As boats get wider sometimes perfectly good docks become obsolete because they cannot accommodate the newer and wider boats.

-Plan repairs and replacements to occur when it will have the least amount of impact on your ability to generate income.  This is not always easy, usually when it is the best time to conduct repairs or install replacements it is in a slow cash flow period.  The way to minimize this problem is to keep a perpetual list of needed projects.  The list should include a brief description of the project, the estimated cost, whether or not it will be done in house or farmed out and a priority in relation to the other work on the list.  This is a living document and can change on a daily basis particularly relating to the priority.

-When it comes to equipment such as forklifts, boat hoists, transporters, vehicles and office equipment, consider the tax implications and available cash to decide whether it is better to lease or buy.

I think it is worth mentioning again that cash will influence what, when and how something gets done in your marina.  But, if you wait to add the cash element into the equation after going through the steps that brought you to a particular decision you will have a different perspective regarding cash and usually find a way to come up with the necessary funds to get the job done.

I am sure that some of you reading this article could add to this list from your own experience.  Keep in mind it is not necessarily a specific list that is important but as long as you have a methodical way of going through your decision making process and follow that process you will maximize the financial resources you have available and keep your marina in good shape.

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