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Belt Tightening Tips

belt tighteningMost, if not all rental businesses suffered greatly in 2009 and 2010 might not be much better.  What doesn’t break us, makes us stronger, right?  Well, it’s tough to look for silver linings but we must.  One silver lining is that all businesses, households too for that matter, have cut a lot of fat out of their operations and budgets.  Efficiencies are more important now than ever.  With revenues down, operating efficiently is a must but the good news is that this new way of thinking and operating will be even more beneficial once the economy recovers.

Rental companies in general are aging their rental  inventory more now than ever.  With this approach, a rental operator must be careful not to take this “efficiency” too far.  When looking to either efficiently dispose of equipment, re-rent equipment or purchase larger than normal items, consider the following two points:

Do not make the decision to replace equipment based on age alone. You must look beyond the age of equipment and very carefully at the condition of each piece of equipment in your rental inventory..  We have found, in many cases, that individual pieces of equipment can be productive cash producers well beyond normal replacement cycles.  For construction equipment, monitor repairs and maintenance expense by individual item, by category and by your fleet as a whole.  Any time that a rental item’s repair and maintenance expense exceeds 10% of its annual rental revenue, it must be analyzed very closely.  Is it a “problem” machine that historically has been in the “down line” or excessively in the shop?  Or, was a major repair just completed on the unit and it is now ready for more continued service?  With the major repair, will the unit likely be below the repair and maintenance threshold going forward?  We have 13 points we look at before we advise a client to dispose of a piece of equipment.  Get feedback from your mechanic(s), counter people, etc. before you make a decision based on paper analysis alone…

Don’t Rule out Re-Rental.  Especially on larger items, rental companies should look at this alternative to investing/purchasing new equipment.  Typical re-rent items are items that you either can’t or don’t want to purchase now (due to high cost or  low utilization rates) or that are not in your “core competency.”  We have often seen companies establish demand for equipment such as larger tenting or larger aerial equipment through re-rent arrangements with manufacturers, dealers or even competitors.  As long as you can make a 20% margin, it might make a lot of sense to re-rent certain items.  If, due to sufficient demand, you do decide to purchase a larger than normal piece of equipment for your company, or a new item that is new for your rental company, consider buying a used equipment.  For construction equipment rental, auction prices are near all time lows.  Even for party/event rental companies, we’ve seen a number of ads and opportunities to purchase used equipment and tenting at reasonable prices.  You can save upwards of 50% off new with used equipment, which also will drive up your dollar utilization and give you some pricing flexibility.  That’s efficiency.   Just make sure that the equipment presents the right image for your company and/or is mechanically sound  before it goes out on rent.

Think “efficiency” and you’ll be better off now and in the brighter future.