Work On, Not Just In

Feb. 1, 2004
My partner, Fred Hageman, and I have a saying: You're either going forward or you're going backward, you never stay the same. We see this with many independent

My partner, Fred Hageman, and I have a saying: “You're either going forward or you're going backward, you never stay the same.” We see this with many independent rental centers. Often, the owner/manager works hard everyday — answering phones, paying bills, directing employees, waiting on customers or making sure equipment gets serviced. They put in a full day and go home satisfied — all the phones were answered, all the equipment was delivered, all the customers were waited on — all in all, a successful day. You do this day in and day out, you've done your job. Right?

Now step back and think about this. Did you, as an owner or manager, do anything today to improve your business? There's an old cliché about the definition of insanity that goes something like this: Insanity is doing the same every day and expecting to get different results. Don't get me wrong here — waiting on customers and answering phones are important, but so is the bigger picture that you as an owner or manager must work on to keep your business moving forward and growing. It's the “sane” thing to do.

Here are some specific actions you can take as the owner or manager to keep your rental store moving forward:

Employee reviews

I'm not talking about just giving them a raise. I'm talking about a face-to-face sit down with each and every employee. This is a frank (but keep it as positive as you can), two-way discussion of their job performance vs. your expectations of them. Employees deserve to know where they stand and what is expected of them. This should also be a forum for them to provide you with feedback of problems and suggestions. This should be done as part of a formal process at least once a year, although consistent two-way dialogue is a must throughout the year.

Review your rental rates

Recently, we were at a rental store that had not had a change in rental rates in 10 years. Think about gasoline prices, insurance costs, employee pay rates and all the costs in your business that have changed over the past 10 years. Does it make sense to leave your rental rates the same? We believe in realistic rental rates that reflect market reality. We also believe in a fair return on your investment. Rental rates on individual items should be monitored constantly based on market conditions with your entire price list reviewed annually. Periodically you monitor competitors' rates as a reality check, but set rental rates that will give you a targeted and reasonable return on investment. Make sure you are keeping a lost rental log that includes any rentals lost because of pricing issues. When was the last time you changed your delivery charge? Do you have other ancillary charges to boost your bottom line?

Tap into the rental community

Find several rental center owners or managers that have stores similar to yours that do not compete within your market. Develop a running dialogue with them. Share your problems and successes and get their thoughts. Find out what's renting and what's not and what they are stocking in their showroom. Tour their operation and ask questions. Have them tour your facility and give you frank feedback. You may also want to do this with a local business associate that is not in the industry.

Review your rental fleet

Check both time and dollar utilization. Remember the four basic tenants of time and dollar utilization:

  • High time and high dollar: Buy more!

  • High time and low dollar: You're rates are too low.

  • Low time and low dollar: Sell!

  • Low time and high dollar: Your rates may be too high.

Overall dollar utilization should be in the 60 percent to 70 percent range for a contractor-oriented store, 80 percent to 100 percent for a general rental store and 150 percent or more for a party rental store.

When you're done with time and dollar utilization, check your repairs and maintenance history. Any item with repairs and maintenance greater than 10 percent of its annual rental revenue should be reviewed for possible disposal and/or replacement.

Make sure you are tracking the basics

At a minimum, you need to be looking at the following reports on a regular basis:

  • Lost rental logs.

  • Equipment time and utilization reports.

  • Equipment maintenance expenses by individual piece of equipment.

  • Revenue comparisons: This month vs. last month; this year vs. last year; this month vs. the same month last year; and actual vs. budget. Break out by category (i.e. rental, sales, delivery, damage waiver etc.).

  • Monthly financial statements (annual or quarterly statements are not enough). Regularly investigate any expenses that look high vs. normal month or last year.

  • Payroll as a percentage of revenue. Included in payroll and related expenses are base pay, overtime, vacation pay, sick pay, commissions, bonuses, payroll taxes, employee insurance and any other employee benefit expense. Analyze your expense to revenue ratio every pay period. Target 25 percent to 30 percent for general rental and 40 percent to 45 percent for party/special event rental.

  • EBITDA cash flow as a percentage of revenue. Compute EBITDA as follows: Net Income + Interest + Depreciation + Amortization. Target 30 percent or greater in general tool/construction rental and 20 percent or greater in party/special event rental.

All signs point to 2004 as being a good economic year for us all. Make sure your business gets its fair share by working on some rental industry basics.

Gary Stansberry is a partner in the consulting firm of Hageman, Stansberry & Associates, which specializes in the rental industry offering operational consulting, mergers & acquisitions and valuation services. More information about HS&A can be found on its web site at Stansberry can be reached at 817/563-6882 or by e-mail at [email protected].