One of the goals for your small rental management company may be to eventually morph into a mid-sized or large rental management company. In order to remain successful during a period of growth or ownership succession, rental management companies need to keep an unwavering focus on strong project and financial management practices. You want to ensure you have the right business processes and systems in place to help your business effectively and successfully transition to the next stage of your development.
Rental Management Best Practices
Regardless of the size and scope of each project, it’s essential to ensure every single project that comes your way contributes to your rental management company’s profitability. A number of project management best practices can help you achieve that aim.
Financial oversight of project results: Project managers need to understand each project’s financial status as well as its impact on the organization. A system that provides access to business intelligence is key, allowing managers to review, evaluate and, in some cases, even model different financial scenarios. This allows your project managers to:
- More accurately price jobs
- Determine which business areas need improvement
- Identify which type of projects generate the most profit
- More easily contribute to the overall profitability of your company
Ongoing project communication: Project managers need to not only communicate the ongoing status of each job to the client, but also to subcontractors and project team members. Again, a comprehensive system allows for easy access to and relaying of the needed information.
Project scope management: Each project may have several different phases, and each phase runs the risk of “scope creep,” or performing work that goes above and beyond what was initially agreed upon. To keep creep under control, project managers can set expectations for each phase at the beginning of the job. If and when the scope of the work changes, they can likewise bill accordingly.
Ongoing monitoring and reporting: The most successful rental management companies constantly review the project performance of current jobs, jobs that are backlogged, and jobs coming up in the near future. Knowing what work needs to be completed, and when, helps project managers best allocate the resources and manpower to get everything done.
Financial Management Practices
Even the best project management practices won’t automatically result in success unless your company combines them with strong financial management practices. And the best financial management practices are typically accompanied by a reliable business system that ensures the information you and others required is easily accessible to authorized users.
One of the most important financial strategies is being aware of what numbers you should be hitting with key metrics. An example of typical target numbers for companies poised to sustain growth appears below.
Key metric targets
- Utilization rate: Chargeable labor divided by total labor cost = 60 percent or higher
- Labor multiplier: Net service revenue divided by chargeable labor cost = 2.8 to 3.0
- Revenue factor: Net service revenue divided by total labor cost = 1.7 to 1.8
- Overhead rate: Total overhead expenses divided by direct labor costs = 1.5 to 2.0
- Discretionary pre-tax profit, as a percentage of net service revenue: 8 to 12 percent
- Days sales outstanding (DSO): Accounts receivable divided by annual gross revenue, multiplied by 356 days = 50 to 70 days
Predictive metrics are likewise essential for the overall health and profitability of rental management companies. These can include project backlog numbers as well as statistics on new inquiries, project proposals and projects sold.
Consistently strong project margins: Consistently turning a profit not only increases the overall value of your company, but it also gives potential buyers confidence your organization will continue to produce a healthy cash flow.
Timely, accurate financial reporting: Up-to-the-minute financial reporting and forecasting is again a draw for potential buyers, as well as external and internal investors. Open-book management can inspire confidence and provide insight integral for companies transitioning internally.
Healthy balance sheet and cash flow: Managing and monitoring healthy balance sheets, and showing a visible cash flow, are important again for potential buyers. They also increase your company’s credit-worthiness and capacity for debt.
Solid financial and project management are two crucial aspects for readying your rental management company for growth and ownership succession. By consistently monitoring and adjusting both, your company will be better able to maintain or increase profit margins that attract investors and help ensure a steady stream of success.