In our efforts to put together an accurate forecast for the coming year, we took a look at, so far, the seasonality and determining that from historical records of the company. We also are taking a look at how our rental fleet mix, what the financial utilization of that is, and what we can expect it to be. If we maintain the same fleet, or maybe we're thinking about adding some other machines that will give us potentially a higher financial utilization. The next piece we need to take into consideration is the actual size of the fleet investment. And so, again, this is at original equipment cost. So put together a spreadsheet that looks like this. We're going to have a line for the starting inventory every month, and then you're going to have a line that says additions. And so if you were thinking about phasing in, say, $300,000 or $400,000 worth of equipment, when would you do that? What month would it make sense for you to add those particular machines? And does that have anything to do with the machines that you're selling? In other words, are you just trying to maintain a level size fleet, or are you actually trying to grow the fleet? So with these two rows, you can plan out your additions for the year, and you can also plan out your rollouts. So to put together a forecast requires doing your homework to try to find out the history of what's been going on, creating your seasonality. Then you're looking at your fleet mix and looking at the financial utilization that it produces on average. And now we're looking at how do we want to grow the fleet, and what are we going to roll out? So with this little exercise, you can see the plus, minus, plus, minus, plus, minus. And at the end of the year, we are a slightly bigger inventory, about $12,175,000. So now I drop down and add a few more lines to that same spreadsheet, and I start bringing my information together here. So I've got that beginning inventory and ending inventory from the previous slide, and now I'm adding a row for financial utilization. And this is my best guess of how that fleet is going to perform on a rolling 12 months. So in my busier months, I'm going to get higher utilization on the same machines, and that's going to give me, on an annualized basis, a little bit better financial utilization than, say, in my winter months. So then you can see the row that I've got in there for percentage of annual revenue. I bring in the factor that we started with for January. So now it becomes pretty much a straight math problem. I've got $11.9 million worth of inventory. My financial utilization on an annualized basis is estimated to be 35%. And then of that number, I factor in the 6% of that annual number, 6.65, and that's where I get the $277,591 for estimated revenue for the month of January. And you follow that pattern all the way through the year. And so that gives me a total revenue estimate of $4.348 million against a beginning inventory of $12 million and ending up at about 12.1. So that gives me an overall financial utilization of about 35, almost 36%, for the year. Again, this is income rental only. And what you know, again, from historical information from your business, is that you're going to have transportation income, you're going to have a rental protection program or damage waiver as additional income to this, and you're going to have fuel. So let's just say that the rental turned out to be 90% of the revenue that you generate in the rental department, and 6% or 7% comes from damage waiver, and 2% comes from transportation, and 1% from fuel. So that's how you can make the calculation for revenue and start to be pretty accurate. So we're continuing to build our spreadsheet here. So everything at the top is just like it was on the last slide. You can see our $4.348 million worth of revenue, our financial utilization. And what we're going to do in this next section is back out our cost of goods sold. And if you'll recall, that consisted of two things. That was our depreciation expense and our maintenance and repair costs. And the maintenance and repair costs were parts only in our estimate here. So you can see in the month of January, our cost of goods sold is estimated to be $221,000. And so we take our forecasted revenue of $277,591, add the cost of goods sold, which is a negative $221,000, and we end up with a modest profit of $56,000. As you can see, over in the month of May, we're four times that, $211,000 profit. And so you can follow that exercise of cost of goods sold, which is going to give us a gross profit of $1.598, basically $1.6 million of gross profit. And that turns out to be, in terms of a percentage, 36% gross profit. That's very attractive and it's very real. But that does not mean that we have basically made $1.6 million. What that means is, after I take my direct expenses out of the $4.3 million, I have $1.6 million left over to start paying for overhead. I have to pay my payroll and those types of expenses. So this is a building of a forecast sheet. So one other consideration that you need to be aware of before we fold in the expenses. So we've primarily been focused on revenue earned, and then we've got the cost of goods sold, which is our direct expenses, and now we're getting ready to layer in the expenses. And there's two types of expenses. There's fixed expenses and variable. Think about fixed expenses being those things that the price is the same, no matter if we rent a piece of equipment that day or we don't. So what kind of things would that be? That'd be like the building rent. Or the mortgage on the building. It doesn't really matter if we rent or sell anything today. The cost of being in the building today is the same. Our communications costs, basically your phones, Internet, those type of things. The insurance premiums on the fleet, as far as covering it against damages, it's generally associated with the value of the fleet, and it doesn't matter about whether you earned any income or not. Our marketing expense, our wages, salaries, and benefits, I mean, other than potentially commissions or bonuses, those are all fixed expenses. Our depreciation on the non-rental. So the depreciation on the rental, if you remember, that's part of our cost of goods sold. But we do have depreciation on non-rental, which would be like the tractor-trailer in the picture there, or the front showroom. It could be trailers, it could be the computer equipment, anything like that. And then our interest is also a fixed expense, because it doesn't matter whether you rented anything today or not. Our variable expenses are those things that we only incur the cost when we actually rent something. So if we're not renting our equipment, we don't have any maintenance and repair. If I'm not renting anything, I'm not paying any commissions and bonuses. If I'm not renting anything, I don't have any bad debt. If I'm not renting it, I don't have any fuel costs. So, same thing with transportation. So that's a quick rundown on the difference between the fixed and variable expenses. Okay, now is when we are bringing all of this together. So the top part of the spreadsheet is talking about our forecasted rental revenue, and we can see what our financial utilization is like, and we can see what our cost of goods sold is, and so we can see what our gross profit margin is. In the far right-hand column, we were going to make about $1.6 million in gross profit. Now we start to bring in our expenses, and we've got fixed expenses such as occupancy costs. So you can see the $3,000 per month all the way across. You can look at our communications costs, and it's level all the way across. You can look at the insurance on the fleet, and it's level all the way across. Same way with marketing. You can look at our salaries, wages, and benefits. You can start to see the fixed expenses in here, and you can see the variable expenses. You can take a look at bad debt, for instance, and you can also look at the commissions and the bonuses, and you can see those things are variable according to the activity that's going on in that particular month. Ultimately, that all drops down to become a profit and loss. You can run the numbers all the way across, and you end up with a net profit. So generally, when you're putting together a forecast and a budget, generally it takes multiple iterations of this exercise. And so I encourage you to build a spreadsheet that allows you to do this what-if scenario, and you can go back and you can play with the size of your fleet. You can play with the financial utilization. You can adjust that. You can go into your compensation plan and your commission structure, and you can adjust that. And all your fixed costs, those are pretty straightforward. You can look at what if I sold out some machines faster than I expected. So you need to be very good at forecasting, and it becomes so important to be a good, effective rental manager when you can come in pretty doggone close to your forecast and budget in terms of operating your department, keeping the expenses under control, keeping customers happy, grow the market share out there, and deliver profits to the company.

accurate forecast

seasonality

rental fleet mix

financial utilization

fleet growth