Okay, we have finally arrived. We're now looking at a profit and loss statement that's very typical for an equipment dealership, and I'm going to walk you through the different aspects of a P&L for a dealership. So, typically you're going to have lines for new machine sales, and depending on different types of equipment that you sell, it's probably a good idea to have that divided out into larger equipment versus lighter equipment, primarily because those things have different margins on them. And you might sell attachments, you might sell used equipment at your place, rental equipment sales. That would mean any of the machines that were sold out of the fleet. You may also rental purchase equipment at your dealership. The ones that are highlighted in yellow are typically rental only, or the rent-to-rent department type of activities. And so then you have labor sales coming from the service department, parts sales, you might have merchandise, consumables, transportation income, your rental protection plan, which is also called damage waiver, and fuel sales. And so what I want you to see, a couple of different things. Generally speaking, you're going to have your income accounts primarily work in the same number series. So in this particular example, all of them are in the 300 series. And typically, when we start to look at the expenses, the expenses are also going to be in a corresponding series, and so that might be the 400 group or something like that. So what I would caution you, if it's not currently at your dealership, is I would make sure that the rental income is pure rental income. It's not rent-to-rent plus rent-to-sell. It's not rent-to-rent plus rental purchase income. And it's not rental income plus the damage waiver charges. It needs to be just the pure rental income for the rent-to-rent fleet. Now, transportation. This gets kind of interesting, because at a dealership, it's very common for the sales department, potentially, to deliver a machine, and the transportation needs to be charged. The rental department is sending out equipment, and they charge customers transportation. And then you may have the service department involved in delivering equipment back to a customer, and there's transportation involved. So I would highly recommend that the transportation income have a departmental code that goes with this, so that we can see, in this example of $9,700 of transportation income, how did that break down by how much of that was generated out of the sales department, the rental department, or the service department. Then, the line under that, we've got the rental protection plan income. So in this case, we billed out $3,600 worth of damage waiver. And then fuel sales. So fuel sales is one of those things as well. It could be on a new machine that we charge a customer for fuel. It could be that when we repair a machine for someone, we put some fuel in it, and we charge them for it. And then every time we rent a machine and we fill it back up, we charge the customer. So I think that transportation and fuel should also have departmental codes that go with them, so that you can more accurately determine what your revenues are, because we're also going to make sure that you are covering your expenses. So now we're going to look at the cost of goods sold in our income statement or profit and loss statement. So as I said, the income accounts started with the $300s. It's common for the cost of goods sold to be in the $400s, and they should align themselves. So if you'll recall, in our definitions, the cost of goods sold for rental equipment consisted of two things. It was rental equipment maintenance and depreciation. And so that's why I've highlighted those two things, because that's what's considered the cost of goods sold before we can figure out how much profit we actually made. Gross profit that we actually made from renting equipment. And then here is the expense accounts that went against the income for transportation and our rental protection plan, and then our cost of fuel. I want you to notice that on the rental protection plan, there was no expense. Quarter one, quarter two, quarter three. What I will promise you is that there was some expense involved, but oftentimes I go to dealerships and what I discover is that the dealers are not repairing equipment that's actually covered by the rental protection plan and debiting this expense. So when I look at their operating statement, it would appear that they made 100% profit on the rental protection plan. And that's probably not true. There were probably some damages that should have been covered by this plan. And in fact, either they were charged back to the customer, correctly or incorrectly, but it's most likely that they got written up and they went against maintenance and repair. So as a rental manager, what you want to make sure you're doing is that you are accurately accounting for damages that happen to equipment. And so if a piece of equipment is covered by the rental protection plan and it gets damaged, then when a work order is created in the shop, the charges for that are supposed to go in this 400 account back against the rental protection plan. So now I want to take a look at the expenses that are, again, associated with a rental department, and these things need to be broken out by department. So if this was a dealership P&L statement, then we need to see salaries and wages and bonuses and commissions, payroll taxes. We need to see those things broken out by department. So I would highly advocate that you get a departmental operating statement created, if at all possible. Then it will help you be able to focus your attention on managing the expenses. If all of your activities are kind of combined with everyone else's numbers, it's going to be very difficult for you to effectively manage your department. So the salaries and wages, bonus payroll related items, in other words, even your workman's comp is considered a payroll related expense. And then potentially you've got some marketing and advertising expense and meals and entertainment associated with the rental department, and if you have any training expense. Additional expenses that you may see looking farther down, take a look at number 705. It's very common for rental to incur some bad debt, meaning that we bill the customers and they don't ever pay us. And so I would highly recommend that you plug in a number there that would be probably about one or one and a half percent of your rental revenues, your top line rental revenues, and just keep that as a cushion against bad debt. We all know that it's not a great idea to have bad debt, but at the same time, if your credit policy at your business is too tight, it may mean that you are running off some opportunity. And in the equipment business, it's very common to have somewhere between one and one and a half percent as bad debt, and because this is such a highly profitable business, that's okay. It's when you have, say, less than one percent bad debt that you may be playing a little bit too close to the cuff, and you may be able to be a little bit more lenient with who you do business. So I want you to also understand on the income statement that there is depreciation that is going against other assets of the company. So we know that there's depreciation being worked against the rental equipment, but there is also depreciation going on against everything, the furniture, the computer, any leasehold expenses. Let's just say you built a new wash rack out in the back. That would have a depreciation factor going against it. All of your utility vehicles, your trucks, your tractor trailers, any of your tow-behind trailers, any of those things, those are also a depreciable asset, and then whatever shop equipment that you have. So make sure that you understand that every time you buy something or you have an asset that is allocated to the rental department, that you're going to pay a depreciation factor on that, just like you're paying depreciation on your rental fleet. And then you can see in the 730 series that you've got interest, and you've got loan interest from manufacturers. You may have finance charges from a bank. So typically you're going to want to see what is the interest that's being associated with any debt on the rental fleet. The rest of it is not your responsibility. You also have insurance related to the rental fleet. We look farther down, you've got typical office supplies and those types of things. Taxes, licenses, and fees, and those things can be associated sometimes with the real estate. They can also be associated with trucks and trailers, tags for equipment to be able to license the vehicles. You've got cell phone expenses, potentially auto insurance, vehicle leases. All of these are very typical expenses that your rental department could have. Then we have some other types of income that the business makes, potentially through interest earned at the bank, or if you recover bad debt, those types of things. And so at the end, you have this net income, which is the sum total of all the income, all the revenues that we had, less the cost of goods sold, which gives us a gross profit. And then from the gross profit, we pay out all of our expenses. And then what you're seeing on the screen here is we have an opportunity to add back any additional income that we made that really wasn't directly associated with the services that we provided, and you end up with a net income. So I just wanted to remind you, as I have worked with dealers in the past, there are four typical areas that I see them not break out the detail associated with the rental department, and one of those is transportation. We already talked about that. There needs to be an income account for transportation for rental. There needs to be an income account for rental. We already talked about that. There needs to be an income account for transportation for rental. There needs to be an expense account, GL account, set up for transportation for rental. There needs to be an income account for the LDW or the rental protection plan. There needs to be an expense account set up to match that. There needs to be an income account for fuel, an expense account for fuel. There needs to be an income for damages to rental equipment, and what is that? That's when we bill a customer for damages to machines, and then we've got an expense account to go with that that is the service department charging us to repair our machine. And so you need a plus and minus account for each of these things so that on a monthly basis you can see whether you're at least break even on transportation, or how are we doing? Are we really making money with our rental protection plan, or am I making money on my fuel sales? Did I remember to charge everyone? And then on my income damages to rental equipment, am I being straight up with the customers in timing the invoices so that I can recover the damages that I'm experiencing?

profit and loss statement

equipment dealership

income accounts

number series

expenses