Take a Good Hard Look at Rental for 2011 - On the Numbers
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SECTION: On the Numbers

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Take a Good Hard Look at Rental for 2011

By Garry Bartecki

Article Date: 01-01-2011
Copyright(C) 2011 Associated Equipment Distributors. All Rights Reserved.

Know what you're doing and use the right tools to capitalize on what's likely to be the main game this year.

If you are reading this you made it through one of the toughest years in the history of your company – and now you're ready to start selling. You've made all the tough decisions, except perhaps one: Are you going to sell equipment or primarily rent equipment?

Many publications and industry experts suggest that contractors may not be ready to buy new and used equipment because they went through the same recession you did, and they now find themselves in a precarious financial position, as well. Work is still scarce, profit margins thin, work territory expanding, financing still tough to get, bonding difficult to secure, all of which are making many contractors conclude that buying anything is not an option this year and that rental is the way to go until the backlog grows to a profitably comfortable level. Unfortunately, while work is picking up, many contractors still do not have the first quarter of 2011 booked.

Those contractors needing replacement equipment may look first at the used market, even though that market is tightening up. Since used equipment is harder to finance there may, in fact, be new sale opportunities available as long as attractive financing options accompany the sale.

But let's assume the analysts are correct and sales will still be meager in 2011, with rental sales robust. Are you prepared to deal with this very active rental market? If not, here are some of the things you need to consider:
  • Inventory needs
  • Rental fleet needs
  • Transportation equipment
  • Current rental contracts
  • Billing standards
  • Rate schedules
  • Rent to sell procedures
  • LDW insurance
  • Staff familiar with rental
  • Accounting and tax knowledge about rental
You should make this rental list a priority. Rental can be a great profit producer, but little mistakes can take a terrible toll on cash flow. Even if you are comfortable with these topics, a two- or three-hour refresher with the management team and then the operating folks is probably in order.

United Rentals recently completed a customer survey to determine customer needs and the top three things rental customers want are:
  1. Deliver On Time
    Everybody wants the 7 a.m. delivery slot. If they play their cards right and order the rental in a timely fashion they have a good chance of getting it. But if you tell a customer they have that slot, you better deliver on time, and if you cannot you better communicate the delay as soon as you know about it.
  2. Communicate
    Communication regarding delivery has to continue throughout the day. Nobody wants to hear "We will be there some time between 7 a.m. and noon." You have to be better than that, and if you are not, now is the time to improve your equipment delivery procedures. Communication continues throughout the rental cycle, answering questions, providing call off numbers and picking up the return as soon as possible.
  3. Prepare Correct Billing
    Billing is only as good as the initial information the rental manager receives. It should be up to the sales personnel to determine the right equipment to use, the rate for the rental, freight, fuel and insurance, and then confirm those facts with the customer before the first or only invoice is mailed. Having to adjust the invoice after the customer receives it is a no-no and to be avoided at all costs. And customers have to understand that "call off numbers" are required to confirm the end of the rental term for billing purposes.
Confirming and documenting discussions regarding the initial rental and the call off should be a top priority.

Financing a rental fleet is somewhat different from financing inventory because eventually the curtailments or monthly principal and interest payments will start. When the financing landscape changes, the rental operations manager better have a good handle on rental rates and how to calculate them, adjust them and readjust them to ensure the rental transactions produce sufficient cash flow to fund debt service. Time and dollar utilization stats have to be available on every rental unit in the fleet and adjustments made to the fleet as necessary to "right size" the fleet to the type of activity you are receiving. If you don't have a proper rental accounting system in place it will be tough to manage the rental operation in an efficient manner.

Remember, cash if king. Don't run out of it because you didn't manage your rental fleet.

Garry Bartecki (gbartecki@aednet.org) is AED's vice president of Finance.
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