Maintaining accurate equipment rate calculations is a necessity that companies regularly overlook. This can become a serious issue, as unforeseen charges pile up when it comes to use and maintenance costs.
In an interview with Construction Business Owner, TBR Strategies CEO Preston Ingalls stated, “If we don’t have something pretty close to actual rates, it just means we are hiding the actual costs of running our equipment somewhere else in the profit and loss statement.” Unknown or inexact expenses that are covered by your profit and loss statement become an issue because they can grow to seriously affect your bottom line. The key to resolving this, and gaining more profit, is to identify and consolidate these costs.
What might I be overlooking?
The most vital aspect of reducing equipment costs is recognizing them. A thorough assessment of your equipment costs is key. It may seem straightforward, but there are many factors that must be accounted for, and as a result the task is not always simple.
Consider the following example:
A company truck is used daily by your business for a variety of tasks. It transports employees, serves for storage while on site, and occasionally performs heavy tasks such as hauling materials and trailers. The obvious costs for such a vehicle are upfront: its purchase or rental fee and gasoline. But there are a number of costs that go beyond these. For example, repair fees or general upkeep, such as maintaining the vehicle’s tires or suspension system. The environment the vehicle is used in should be considered also, because operating in severe weather conditions will produce greater wear and tear than in milder climates.
These are just a handful of potential issues and there are many more to keep in mind. Considering the sheer number of possibilities, it is easy to understand why companies can overlook some of these circumstances. After all, it is the upfront costs that stand out.
How do I begin to determine these costs?
The key to recognizing all equipment expenses is through determining your owning and operating costs (O&O). Most equipment retail companies provide an estimation for O&O costs upfront with the sale of equipment.
Another important method for identifying O&O costs, is communication between owner and operator. Even the best estimation cannot take all factors into account, so constant communication is required to keep on top of whatever costs your equipment may incur.
Once identified, what do we do with this information?
The full breakdown of your equipment’s operating costs should be utilized to track each piece of equipment and determine where those costs can be reduced. Ingalls expounded further on this point by stating, “The company must have a clear picture of what they are pushing to do from a sales and estimator perspective, which means an understanding of where you want to be more competitive, where you want to reduce rental rates, and where that fits in against your competitors.”
The CPAs at Klein Hall can assist in tracking the areas where your equipment costs can be reduced. Feel free to contact us at any time so that you can function as efficiently and profitably as possible.