Rich Rentals is an equipment rental business providing a wide variety of tools and machinery for the Do-it-Yourselfer. This family-owned venture seeks to provide a competitive service to its customers and secure a long-term financial opportunity and livelihood in which the entire family can participate .
Since 1988, our business has suffered from cash constraints. We have used the services of University of Southern Florida's Business Analyst Program, Small Business Development Center, and our accountant to analyze the problem. Our large number of assets and varied services have made our situation difficult to analyze. However, we now know the basis for our cash shortages, and they are as follows:
We have already initiated several changes that have had positive results. The future changes fall into two categories: Management and Financial. When these changes have all been implemented, the company will be within industry norms in two years, as will be shown later in the plan.
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In the summer of 1983, my wife and I began discussing the possibility of relocating to Bradenton, Florida and starting a family business. We were attracted to Bradenton because of its proximity to family, the lifestyle, and the ability to raise our children in a more controlled environment. After months of discussion, market studies, and reviewing several different potential business opportunities, we decided on the equipment rental business. The equipment being rented by the existing equipment rental business was in very poor condition and they had recently filed Chapter 11 Bankruptcy. We spent time evaluating their particular circumstances and determined that their failure was primarily related to overextension financially, brought on by the tremendous drop in oil prices significantly hurting this area, as well as an absentee owner.
We provide damage waiver to create a worry-free environment for our customers and ourselves by charging a ten percent mandatory fee. This has been very successful in our operation.
Rich Rentals has been in business now for almost eight years and we have maintained detailed financial information since the beginning. Our projections for 1992 are included in this business plan and are based on historical data, and augmented with the latest charges that are outlined in this plan. In addition we have maintained records of most requests for equipment that we were unable to fill for whatever reason, and thereby have an accurate estimation of demand.
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When we opened our business in 1984, unemployment in Bradenton was at one of its highest levels and the mines were doing poorly. Because of this, we and experts from Quick Rentals performed detailed market analysis prior to making our final decision. Quick Rentals provided regional and community market and site location analysis and start-up aid. Bob Shafer who owned Quick Rentals, and his family had extensive experience in this industry, having opened over 150 stores through Quick Rentals. The potential for success was here especially with the Bilk Contract Co. construction just beginning. In addition, the size of the community and our knowledge of the existing rental store indicated that we could soon be the only equipment rental business in Bradenton. Since 1988 we have been the only rental equipment business in this market area.
We know the current market potential for Bradenton is only partially reflected in our historically-based financial projections. Certain rental equipment additions and planned construction for 1992-1993 will enhance our revenues for the near future. Further information on the local economy, including recent newspaper articles are available upon request.
These improvements reflect our rate increases beginning in October 1990, which made up for no real rate increase since 1987. As a result our return on equipment investment in Bradenton has improved substantially. THE POTENTIAL IS HERE.
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Expenses went up as well: Wages paid to employees were up $13, 952.00 or 33 percent and equipment repair costs were up $14, 610.00 or 72 percent. Wages were up because, we increased our labor force by one full-time individual in early 1991. Prior to that we had added a third full-time person in 1988. This was to provide the necessary personnel required for the additional repair volume created by adding the Kubota and Briggs & Stratton line. Due to the nature of our business our efficiency per man hour decreased proportionally making the addition of outside service work not profitable. This fact had escaped our analysis because all of our personnel shared responsibilities and duties. Service was also the only area where we encountered substantial competition.
The results of adding manpower are clear. We slightly increased our profit from LABOR AND DELIVER plus NET SALES INCOME by $559.00 over 1991. However, when you subtract the increase in total wages paid over previous years, you can see all we did was create a deficit of http://$13, 393.
In addition our increase in Equipment Repair Expenses are two-fold in nature. First, because of the manner of accounting (non-cost), we are unable to track all items to the proper department. Therefore, the shown expense account is higher than it should be, by about $3, 218.00 or 47 percent over 1990. Much of this expense is related to customer repair work and not rental maintenance. Secondly, we have had excessive repair costs on some of our large equipment (Skid Steer Loader, Trencher/Backhoe, Tractor, and one Compressor) of approximately $6, 952.00. The current management goals will reduce and contain these costs.
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In 1991 we could have shown additional income of about $8, 459.26. This was a paper loss on a John Deere Tractor and a Kubota Riding Lawn Mower that were sold primarily because they were beginning to cost us a lot more in repairs than they could possibly earn. This adjustment should be noted when comparing 1991 to previous years. This comparison indicates an improvement in our revenue over previous years related to the addition of Damage Waiver and our aggressive rate increases beginning in 1990.
Even before the end of 1991 it became apparent that several changes were still needed to improve our financial situation. Our analysis merely highlighted much of what we already believed. Even though our revenues were up in 1991 we still did not have the strong financial showing possible primarily due to higher labor and equipment repair costs. As a result of this information, we have made certain decisions and established some long and short range remedies as follows
First, we have already DECREASED OUR WORKFORCE by two employees and will maintain this level, except for possibly temporary workers during peak periods.
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We will be CONCENTRATING ON STRICTLY THE RENTAL BUSINESS and EXTENSIVELY LIMITING OUR REPAIR BUSINESS to commercial accounts. This should decrease scheduling problems we have had with homeowners and other individuals.
WE WILL TERMINATE our Kubota and/or our Briggs & Stratton agreement IF ASKED TO INVEST ADDITIONAL TIME OR MONEY. Currently our inventories are more than sufficient to support our rental business. Our analysis has shown service work to be a loser.
We are requesting that G.E. Capital assist us in one of the two options listed below in our efforts to upgrade our equipment and to realign our cash position as follows:
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We are requesting that SBA reamortize our loan to allow for four months without payments starting in June. We would like the maturity date to remain the same. This would result in an accumulation of $9408 in operating capital.
We renegotiated a long-term rental we have had with Biringer effective January 1, 1993, from a previous level of $750/month to $920/month. This is a contract we have had for over two years and it should go for about two more.
THE CHANGES WE HAVE INITIATED SHOULD SAVE AN ANNUAL COST OF $23, 436 PER MONTH. (A chart outlining this information has been prepared and is available upon request.)
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Rich Rentals has several areas where we maintain a sustainable competitive advantage from the standpoint of being the only service provider in town for the areas of equipment rental; Kubota sales, parts, and service; and Bostitch and Interchange Air Tools and Fasteners. Areas of limited competition are Western Union (one competitor) and Ryder Truck rentals (one competitor; U-Haul).
It is our goal to extend the very best service and equipment to our customers at a competitive price. Our prices must remain competitive to prevent competition in the rental business from within Bradenton and the surrounding areas.
They are listed in order of profitability. Since we are currently getting all of the small contractor and industrial rentals we can fill, we most exploit the homeowner segment to a greater degree than in the past.
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They are listed in order of priority. Ryder Truck Rental has estimated our share of the truck rental business at 52 percent of the local market. As of April, we became a zone leader for the distribution of Ryder trucks. This will be a revenue enhancer from the standpoint of having additional trucks to rent when needed.
We plan to enhance our rental income by selectively targeting the homeowner market. Our goal in the coming years is to continually increase the homeowner segment of our rental business by eight percent over the previous comparable period. We will continue our existing efforts directed at the contractors and industrial
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