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Financial Benchmarks to Drive Rental Profitability by George Keen

Rental is an interesting area to examine from a strategic point of view.  Let’s look at rental growth in the last 20 years.  In 1987, did you consciously make the decision to enter into the rental market?  Consciously make the decision to commit a certain amount of funds to rental?  Did you establish specific financial benchmarks for rental operations and continuously monitor progress against those goals to adapt, change, and improve?  Or, did you get into the rental business as a reaction to certain factors?

What we’ve seen as a consulting firm is that most heavy equipment dealers are in rental not due to established strategic focus, but as a reaction to certain situational drivers.

Want to read more?  Click to download the full article Financial Benchmarks to Drive Rental Profitabilityin PDF format.

A Huge Thank You

Currie Management Consultants, Inc. would like to extend a heartfelt thank you to all of our clients, friends and partners who supported our annual Autism Awareness event.  The event was this past Sunday and was a huge success.  Matt Hicks and his team, Cameron’s Voice was the leading fundraiser.

Kudos to our dedicated employees Jerry Collins and Cathy Friedman, along with her family who participated in the 5K Race for Autism Awareness that morning.  Jerry ranked first place for his division and Cathy, Phil and Tyler Friedman did an outstanding job.

Click  to see some of the Currie kids at the event.

George Keen was on the job with his camera so we will be adding more photos soon.

Thanks again to everyone!

Currie Management in support of Autism Research

As many of our clients and friends are aware, Currie Management Consultants, Inc. is committed to support the vitally important Autism research that is occuring here in this country.  Our local research center has been extremely valuable in providing support and assistance to those families affected  by Autism, which includes our own.  Once again we will be sponsoring and participating in the Annual Walk/Run for Autism Awareness.  Please visit our team page, Cameron’s Voice, and find out how you can help.  This year’s event is on Sunday, April 25 in Worcester Massachusetts.

Service Department Expense Control, Part Two

Now that we have defined the big buckets on the financial statement, let’s get back to uncovering whether you have a service operating expense issue or a gross profit issue.  The biggest challenge I come across in performing the reviews with dealers/distributors is in how they are accounting for Service Recovery Items.  These items are what you are charging your customers for service vehicles, shop supplies, hazardous materials disposal, etc.  Let’s look at the example below.

Service Labor Revenue $      1,050 100.0%
Cost of Goods Sold $         375 35.7%
Gross Profit $         675 64.3%
     
Personnel Expense $         215 20.5%
Operating Expense $         160 15.2%
Occupancy Expense $           55 5.2%
Total Dept. Expense $         430 41.0%
     
Department Profit $         245 23.3%

At first glance you would conclude that there is a major issue with Operating Expense due to the fact that is over 5% out of line with the CMC model.  Other areas of the department such as Gross Profit is less than 1% off model.  This is not very uncommon to see in many of our Best Practice Groups.

But when we dig further you discover that $50 of Service Labor Revenue is actually revenue associated with charges such as mileage, zone charge, EPA, shop supplies, etc. that are common in most distribution companies.  The CMC model would place those items not in Revenue but as a contra expense account under Operating Expenses.  Now let’s look at what that does to the financial statement.

Service Labor Revenue $      1,000 100.0%
Cost of Goods Sold $         375 37.5%
Gross Profit $         625 62.5%
     
Personnel Expense $         215 21.5%
Operating Expense $         110 11.0%
Occupancy Expense $           55 5.5%
Total Dept. Expense $         380 38.0%
     
Department Profit $         245 24.5%

The bottom line figure of $245 did not change but we are now much closer to identifying the bigger issue.  Operating Expense went from being off 5.2% down to 1%.  Occupancy Expense stayed relatively the same but Personnel Expense jumped up 1%.  But the biggest jump occurred in Gross Profit.  It went from being off model by 0.7% to being off 2.5%.  We have a bigger revenue and productivity issue and less of an expense recovery issue.

This happens in other departments as well.  Think about the same exercise when it comes to Parts Freight Expense & Recovery.  If you put the Recovery under Parts Revenue and the cost under Parts Operating Expense, you think you are doing well in margin but it is inflated.

So if you are wrestling over what you think is a Service Operating Expense issue, make sure you are accounting for the recovery items correctly.  Place them down as contra accounts and match them up with the actual expense.