Unlike retail businesses, rental businesses have many moving parts and unique in many ways. For one, you still retain the ownership of your rental equipment and therefore the onus is on you to ensure your equipment is in good condition to be rented again and again.
In our experience, there are 6 major factors that determine overall success of a rental business. Attending to these in a methodical and step-by-step way will ensure your rental business stays ahead of the competition thereby ensuring success.
Step 1. Customers
A business’s primary purpose is to ensure that its customers receive the best possible products and services from you and your staff. Investing in a good Customer Relationship Management (CRM) system will help you maintain accurate details of your customers and their rental preferences. From FREE tools such as Hubspot Basic to comprehensive systems such as Salesforce or Infusionsoft, options are wide for a rental business to choose.
Step 2. Inventory Management
As a rental business, your equipment is what makes your business tick and makes money for you and your staff. Depending on the location, types of customers you service and other factors such as access to regular servicing of equipment, competitive environment etc, you need to make decision on what kind of equipment to rent and how much to charge for them. Categorizing them into various groups will help you understand what kind of equipment make you money and what don’t. You can choose to track your items with some form of asset classification for big ticket items.
You may not want to purchase all the equipment that you wish to rent. You can begin by leasing your equipment at competitive rates and then start to rent the equipment to your customers. There are other options too. Cross-rental, sub-rental is a very accepted form of business practice in the rental industry. This can help you save precious cash and help you get started with your rental business. Over time, you can start to invest in your own equipment with some capital purchases.
Step 3. Rental Pricing
Get your rental pricing right, you will make lot of money. Get it wrong, it can lose you customers and therefore your business. You need to regularly monitor the competition and perhaps do some frequent “shadow shopping” to ensure what the market will bear in terms of rental pricing. You can choose to rent out at high rates for short-term rentals and have attractive rates for long-term rentals that will ensure your equipment get utilised regularly and start to deliver return on your investment.
Every industry employs different mechanisms to recover your equipment costs over X number of rentals. For example, furniture rental businesses typically recover cost of their furniture over 6 or 7 rentals. Whereas heavy machinery rental businesses may take 2 or more years to recover their capital costs.
Step 4. Invoicing
Its no good having your equipment out there at customer sites if you are not able to raise invoices in a timely manner and get paid. Regular invoicing covered by strong rental Terms & Conditions is paramount for a rental business. While your accounting system will help you raise invoices, it may not be efficient. Accounting systems typically only understand “selling” of items, ie, 2 units @ $10 each = $20. Whereas with rentals, your items will need to be charged including other things such as number of hours or number of days etc. That is, you need to charge 2 units @ $10 per day for 20 days = $400.
In addition, you may also need to charge your customers for regular servicing and maintenance (eg weekly service of portable toilets) or transport / delivery costs for delivering and picking up your own equipment.
You need to invest in a business system such as Viberent, that will ensure that you stay on top of your rental invoicing at the click of a button and not wade through different systems. If you have a separate rental system for tracking rentals and separate accounting system for raising systems and these two don’t talk to each other, then it’s a recipe for disaster. You will end up wasting significant time and effort each week manually entering data in multiple systems. Reconciling accounts would become a nightmare as your business grows.
Investing in best-of-breed applications such as Xero for accounting and Viberent for Rental management, that talk to each other, will help save 1 day every week.
Step 5. Maintenance (Prevention is better than cure)
It’s no good having rental equipment that fail regularly and not generating income for you when they are not able to be used. You need to schedule regular servicing of equipment so you can prevent future equipment failures at customer sites. Equipment failure can not only be embarrassing but also erode confidence in your customer’s eyes.
Step 6. Reporting
“If you cannot measure, you cannot manage” is clichéd. Yet every business needs to measure key factors of their business. For a rental business, a key business factor is effective utilization of your equipment. Are they getting utilized 30% of the time or 80% of the time?
Many businesses rely on “gut feel” and think items are getting utilized regularly if the equipment is used once or twice each week. In reality, the items utilisation is about 30% of the time and therefore may not be generating enough income.
While businesses use Excel spreadsheets to make sense of their rentals, income etc, this involves constant duplication of data from your accounting system and other systems. You need to invest in a system that will not only help manage your rentals but also deliver comprehensive reporting on your business performance.
Following these 6 key steps will ensure that your rental business stays ahead of others and help you manage a very successful rental business.
Viberent is a cloud based rental management system that integrates with accounting systems such as Xero, QBO and MYOB. Viberent helps rental businesses to totally automate their end-to-end rental operations through the cloud based system and mobile apps.