After the Financial Crisis: Growth and Ownership Transition Strategies for Rental Companies

With years of economic turmoil behind the rental industry, business leaders have taken numerous precautions to weather the storm. Understandably, variable industry growth and increased market competition has forced many companies to slash costs.

So how can leaders in the rental industry position themselves for future growth and meet the challenges of potential ownership transitions? Today’s success-minded leaders require a laser-like focus on strong rental and financial management practices—the kind that can carry their long-term growth goals to fruition.

The Cost Cutting Party is Over…

During the worst of days of the recession, the trend was to ‘cut the fat’ in order to match the high pressures of economic declines. While organizations across the nation have been cutting their payroll and expenses, they have also competed with a higher emphasis on attractive price rather than increased value. Yet, as well intended as these strategies were, these initiatives have made it even more challenging to scale profitably when economic conditions are good.

Coming out of the recession, everyone was focused on marketing and sales, which has put some significant downward pressure on pricing. Unfortunately, this has caused many companies to sell themselves short. Though leaders should still take care to tighten their belts against the uncertain economy of the future, they need to begin reinvesting in their infrastructure again.

Top 5 Rental Management Best Practices

Every single piece of equipment in your inventory contributes to your bottom line and overall profitability. To increase revenue recognition, we recommend the following Top 5 Rental Management practices:

1. Financial Oversight of Rental Contracts

This doesn’t mean having just a finance person looking at the P&L statements, but making sure the sales teams understand the financial status of contracts and reservations and their impact on the company.

It means being able to communicate the reservation status to the client, sales force, and the entire team that is involved in the process of getting equipment from your warehouse, to your customer and back.

2. Reduce Billing Leakages

Streamlined accounting is required for virtually all contracts. It means that organizations have to understand the true costs of delivering and maintaining equipment for any given period of time, and what their total estimated costs are expected to be.

Often times, what you bill and how you bill does not always match the contract terms. Estimating your costs through to the end of a contract requires having set budgets in place right from the beginning, and ensuring that the right data is available to all people on the team.

3. Prevent Over Committing Equipment

Also referred to as ‘over booking’, over committing refers to when staff accidently accept a contract and take payment for equipment that was already reserved by another customer. By having access to reservations and equipment maintenance schedules during quote or contract creation, your sales team can provide accurate dates and rental managers can effectively eliminate the potential for equipment to move into a ‘grey area’ when changes arise.

4. Consistent Utilization, Maintenance and Reporting

Leaders who are geared towards success in the upcoming years need to make it a priority to have a comprehensive equipment utilization plan and strategy—one that will ensure they not only have enough inventory to meet demand, but also that they have profitable assets to help grow the company and remain ahead of the competition.

5. Employee Training and Development

While organizations have cut costs, they have also de-emphasized investing in training and staff development. By getting back to developing a culture of profitable business management, rental companies ensure that their people understand the processes and their underlying purpose, skills and profit-increasing techniques associated with good rental management. Investing in proper training is a method that guarantees better productivity in the long-term. By creating a culture of excellence, rental leaders will be able to realize consistent, meaningful profitability for years, or even decades, to come.

Knowing Your Numbers

All rental management best practices mean nothing without the strong financial control and business intelligence to keep your company ahead of the competition. With this in mind, it’s important for goal-oriented leaders to recognize where they are compared to where they should be when it comes to key metrics. Having a solid, visible view of historical performance allows for more accurate budgeting and forecasting.

Having strong rental management processes and controls has a domino effect that plugs billing leakages and allows organizations to keep utilization rates and overhead costs on-track. When combined, these all assure strong and sustainable profitability across the business. Strong financial controls are absolutely critical for long-term growth. With cost-cutting off the table and potential ownership transitions as a very possible challenge over the next ten years, rental organizations need to be sure they have a solid understanding of both their historical and predictive performance data.

Ownership Transition

Owners of today’s equipment and event rental organizations are facing never-seen-before challenges of ownership and leadership succession. This is partly due to the demographics of the next ten years, as more people will be within the 50-64 age group range, and less in the 34-49 age group.

Leaders are creeping closer to retiring age without having a lot of other people who are going to be in a position to take over the reins of a company. What we’re seeing are more owners of rental companies trying to sell and less people trying to buy in. Without the surplus of buyers that the rental industry had before, it’s going to be up to the rental leaders to make sure they are financially attractive enough to grab the attention of the few investors around.

Whether your firm is positioning itself to attract internal or external investors, you can be sure that buyers are going to want a lot of confidence in their investment. For owners, putting strong controls into place will improve the odds for a successful transition in the future. To be looked at more favorably by potential buyers, your organization needs to exhibit the attributes below.

Strong and consistent profit margins

Though strong profit margins go without saying, most leaders overlook how important it is to demonstrate consistency in their profitability. Not only will it increase the overall value of your business, but it will show buyers that they can invest in your firm with less risk and better confidence for future cash flow.

Timely and detailed financial reporting

Accurate, timely financial reporting and forecasting inspires investor—both internal and external— confidence. That’s why it’s so important that leaders in the rental industry looking to transition internally practice Open Book Management, to give confidence and insight to those who may be rising up within the ranks of your organization.

Good cash flow and a healthy balance sheet

Demonstrating a healthy balance sheet, with very visible cash flow, increases credit-worthiness and debt capacity. By managing and monitoring healthy balance sheets, your company makes leveraged buy-outs more feasible, removing a lot of the challenges that might deter an external investor from moving forward with your business.

In Conclusion

Equipment and event rental companies looking to grow need to move beyond trimming overhead costs to ensure overall profitability. Equally as important, rental organizations require sound financial management and controls to help them maximize profit margins and stay attractive to potential investors.

The first step towards financial stability in the current landscape is to ensure that your company is managing and inventory and contracts profitably. By redirecting focus to sustainable business growth and implementing rental management best practices, organizations will be equipped to succeed, despite the challenging rental landscape.

It’s now more important than ever to ensure accurate financial reporting, as it facilitates good overall decision making and planning. By effectively tracking utilization, customer demand and other predictive measures, rental leaders guarantee better and more consistent profit margins —attracting investors and guaranteeing your organization’s long-term growth and success.

By |2017-09-22T18:11:12+00:00August 29th, 2016|Categories: Featured, Grow Your Business|