You've just completed Module 3 that had to do with financial management, and you've learned about the income and expenses and the large expense items, and so now it is time for us to move into Module 4, dealing with forecasting and budgeting. As an asset manager and a department manager, it's your job to determine what the profitability is going to be going forward, and so generally this is something that's done in the fall every year, and you're looking at the size of your rental fleet, and you're looking at the number of machines that you have. You're trying to identify the demand and the opportunity in the marketplace. Is there a chance that we should grow the fleet, and if so, how much? Are some of the machines we have getting older, and it's time to roll them out? For our revenues to maintain, if you roll out a machine, you've got to replace it with something of equal value to have an opportunity to maintain your revenue. As you start to sell out your rental fleet, if you don't replace that, then your revenue stream is going to dry up. So forecasting and budgeting is a really big deal. It is pretty much a science from the standpoint of you have good history to work with, and then you have to be talking to your sales staff, you have to have a finger on the pulse as to what's happening in your local or regional market, and you have to plan ahead. So we're ready to get started into forecasting and budgeting. The first thing you need to know is learn from the history of your company. And so I would encourage you to go back approximately three years in revenues and set up a spreadsheet that looks a lot like this. And so you're looking at revenue from January through December, and you plot it in each of the columns with a total at the end of each column. And so then what you're able to do is, for instance, the first column, 2013, the January revenue was $141,568 out of a total of $2 million of revenue for the year for rental. So in January, the January revenue represented 6.99% of the total for the year. Check out 2014 and 2015. And so 2014 January represented about 6.5%, and in 2015 it was 6.46%. And then I've got a three-year average of revenue that took place in January, and then I've got a three-year average of the total rental revenue that happens in that month. The reason that that's important is you can then look, you can bring all those numbers down, and you can start to see a seasonality pattern that's taking place in your business. So why is this important? Because you need to understand that when you're putting together a budget, you don't come up with totals and then divide by 12, and then it's 12 equal parts of revenue. It doesn't work that way. Most people have some seasonality to their business, depending on where the business is located. So if you look at this layout, and this is over a three-year period, so that usually takes into account any particular spikes that you might have had, or maybe there was severe storms, maybe the spring was a little bit late coming, generally a three-year period will flatten out some of those things, and especially when you use averages. So this gives you a pretty nice curve in explaining the seasonality of your business. Another important point to consider when you're doing your budgeting and forecasting is to really understand the mix of equipment that you have, because it is critical to being able to drive financial utilization. So I want to show you an example that is probably more common than not with equipment dealers, in terms of the ratio of heavy, large, and medium equipment. As you can see in the next to last column to the right, the percentage of the fleet is made up of almost 38% of heavy equipment, and then large equipment similar, and then medium equipment. And in this particular dealer's case, they don't have any small equipment, light equipment, not doing much in the way of attachments. So their fleet is having to work between 60% and 70% timeout utilization to be able to drive a financial utilization of 28.7%. I want you to keep that in mind, and we look and say, what if you were to realign some of your investment, or maybe add a little bit to what you already have? So they've got $2.6 million worth of fleet that's generating $760,000 worth of revenue. Let's take a look at what happens if we add a little bit of modification to that. So what if we added about another half a million dollars worth of equipment, but we brought in some items that could potentially help drive the revenue on the bigger items as well? A, we can offer some more solutions for our existing customers, and we may attract some new customers during this time. And what I wanted you to be able to see is with that half a million dollars worth of investment, if you look in the far right-hand column, that equipment would basically produce almost 30% of the revenue with only adding somewheres in the neighborhood of about 16% of the cost. So the profitability of that smaller equipment can really drive a huge difference. So instead of doing the 28%, we're at 33%. So as the rental manager from year to year, I think it is part of your responsibility to look at some of the tweaking that you can do by adding products that will draw customers and it would... Now I'm not suggesting that if you've got excavators that you go get scissor lifts. Those things don't go together. You need to stay within the family of products that help you serve and offer better solutions to existing customers for sure.

forecasting

budgeting

profitability

rental fleet

market trends