Operating a rental business can be a highly profitable venture but remember your business is only as successful as the financial management strategies you put in place. Whether you have just started your rental business or are looking to scale, efficient financial management is a crucial part of your success.
Here are seven tips to ensure your rental company is here for the long haul.
1. Keep your finances separate
The first consideration is maintaining separation between business and personal finances. Depending on the nature of your business, you may also wish to have separation between different product offerings. For example, if you offer event tent rentals and decor rentals, these offerings could fall into separate categories based on their value and use.
Create separation within your accounts as well. Consider having an operating account, an emergency account, a tax account, and any other division you need to keep things organized. Having this structure put in place will help you get a better overarching view of your business and keep everything in order for tax season. This division of assets and liabilities is also a lifesaver in the event of an audit.
2. Maintain a good credit score
Maintaining a good credit score often gets put on the backburner in a business. However, it’s necessary for situations when financing is needed to keep the business afloat or support growth. For example, if demand for your heavy equipment rentals outpaces your supply, you might require a loan to acquire more equipment. You’ll need a good credit score to secure the best possible terms and approval.
In some situations where a business doesn’t have a great credit score, the financer may ask for a personal guarantee from the owner. This puts the onus of the liability on the individual behind the business. Take the time to understand and repair your credit score so everything is ready when you need it.
3. Reinvest in the business
The key to continued growth and sustainability is reinvesting in your business. Your operations should look different five years later compared to your business’s early days. Whether it’s training, new software, hiring employees, or expanding into new verticals, set a plan to put money back into the business as a foundation of an efficient financial management system.
There’s no steadfast rule about how much money to reinvest in your business; it all depends on your unique situation. Many small business owners recommend starting with a modest 10% of your business income with a goal to scale up to 25-30%. More ambitious owners may want to push for 50% of their income. However, you’ll also need to consider your cash flow needs and personal savings goals.
4. Track your numbers
Failing to track your numbers presents many problems within a rental business. You may discover yourself in a situation where you have no cash flow and bills are due. You may discover too late that you’re hemorrhaging money in expenses that you could have managed months ago.
Tracking all of your numbers, from hours worked to mileage when delivering equipment, is an essential part of efficient financial management. You can also use all this data to ensure your tax preparation happens year-round instead of a last-minute push when tax season approaches.
5. Know when to outsource
Know when it’s time to outsource to a bookkeeper, CPA, or tax specialist to handle your rental business finances. At some point, delegating these tasks pays for itself by opening up time to focus on revenue-generating activities. Many small business owners make the mistake of trying to wear too many hats to save money. Outsourcing non-revenue-generating tasks is the first step toward successful rental business ownership.
6. Manage your inventory
Inventory management seems adjacent to financial management, but they go hand-in-hand. Ensuring you have enough inventory to meet demand without overextending is a delicate balancing act. Take the time to research and calculate your needs before investing in more inventory, using data from your systems for guidance.
You will experience opportunities to get more inventory for less money via bulk discounts. Take the time to weigh the pros and cons of this opportunity before spending the money, looking ahead to how it will impact the trajectory of your business. Strive to nourish your vendor relationships for more financial stability and savings opportunities over time.
7. Use rental software
Using the right tools can make all the difference when running a successful business. Attempting to operate a rental business without software that caters to your unique needs is a mistake.
Rental software can help manage the nuances of accounting within your business, ensuring your invoicing and taxes are always up-to-date. Incorporating this software into your workflow will help you maintain better control over your cash flow. One of the biggest challenges rental companies face is keeping track of payments and invoices. A rental software automates these while providing full oversight across the organization reducing manual labor and human errors.
With these critical considerations, you can implement an efficient financial management system for your rental business. Capture the numerical data, analyze the weaknesses and opportunities, and make data-driven decisions to keep your business profitable.
EZRentOut, a cloud-based equipment rental software can help. EZRentOut offers companies in numerous industries seamless rental management along with a host of other features. You can integrate your website with our EZR plug to keep track of all your rental Assets and operations. Try us out today!