By Julie Young
Whether they use pencil and paper, a fancy computer software program, or a CFO or accountant, rental companies have a host of options when it comes to setting up their financial infrastructure.
Brian Duncan, a former accountant, helped Ken Jacobs set up his costing model when Jacobs purchased Raymond Brothers Ltd. 10 years ago. Duncan says that by breaking down jobs into segments that examined cost of renting, the lifespan and depreciation of materials, fuel and labor costs, they were able to develop a model that works for them.
“I’m not sure we are perfect at it, but we went into it extensively, and it seems to be working years later,” Duncan says, noting that tiered distance pricing helps manage ever-fluctuating fuel prices along with other labor-related issues.
David G. Cochrane CPA, CFP has been a party rental accountant since 1988 and says an exit strategy needs to be considered early on. Some people want to build a family business that can be passed on, while others may sell at some point.
“Whatever course you choose will affect day-to-day decision making. Investor groups want to see a minimum of 20 percent earnings before interest, taxes, deduction, and amortization (EBITDA). What you choose to buy in order to grow and maintain your business ultimately helps decide the value of the enterprise. If [capital expenditures are] around 8 percent, there is not a whole lot of room to poorly job cost or discount the selling price of the service provided.”