Equipment Rental Sales Business Plan

Equipment Rental, Inc. (ER) is a Breaux Bridge, Tennessee company that sells and rents heavy equipment such as dozers, backhoes, excavators, and trenchers as well as small home use and construction equipment such as tillers, augers, and chain saws.

ER has obtained the authorization to be a distributor for Hancor Pipe, Stone Equipment, Pro-Cut Diamond Products, Echo Lawn Care, Compact Excavators, and Skid Steer Loaders. The company is the only authorized distributor for the South-Tennessee area for Ramrod Equipment and Komatsu Forklifts.

ER has a world-class management team with direct knowledge of the industry, extensive research experience, and unique administrative skills. Its team includes Mr. David James and Mrs. Sally James. Having lived in Denton Parish for six years, and worked throughout the state, as well as parts of Texas, Mississippi, Alabama, and Georgia, President/CEO, Mr. James has compiled an extensive list of customers/potential customers, vendors, and contacts for equipment consignment.

The company plans to employ two people from the area, in positions within the shop. By employing local individuals, ER would be contributing toward the development of the area. Funds would remain in the area thereby boosting the economy and contributing to the community as a whole. Loyal customers help to expand the company’s business area by word-of-mouth and a pocketful of ER’s business cards.

A key component of the company’s strategy is to continue to add to its ever-increasing product line which currently includes homeowner equipment from Echo and Interstate Batteries, commercial, equipment from Ramrod, Compact S/I Technology, and industrial equipment from Komatsu.

The company is seeking a loan/credit line in the amount of $300,000 for the purpose of expanding the business. Expansion plans include the purchase of additional land and construction of a larger shop/service area, increase rental inventory, purchase of delivery truck, and the hiring of additional personnel including a mechanic and delivery driver. Projected revenues for Year 1 to Year 3 are $210,000, $420,000, and $840,000, respectively.

1.1 Mission

ER’s mission is to become THE exclusive full-service equipment rental, sales, and service company in upper and lower Denton Parish with the ability to service the surrounding parishes of Memphis, Knoxville, Grand Prairie, Plano, Garland, Irvine, and Riverside. Therefore the company’s strategy is to create a limited geographical niche for itself where there are no potential competitors.

ER’s vision is to continue to expand its service to other areas. The company’s coverage area is constantly increasing, as the areas are becoming aware of the company’s presence.

ER began its operations on May 2, 1997 with little capital investment. The company combined 10 years of experience in the sales and rental field to generate a large customer base. After eight months of operations at the present facility, the company has increased its customer list by 100% and its vendor list by 75%. ER takes pride in having brought several new items to this area that were otherwise unknown, such as the spreader/grader and Ramrod products.

2.1 Company Ownership

ER was founded in Memphis, Tennessee in May 1997 to sell and rent heavy equipment, small home use machines, and construction equipment. The company was formed by Mr. David James and Mrs. Sally James. ER is a Tennessee S-Corporation, with principal offices located in Memphis, TN.

2.2 Locations and Facilities

The company has one office currently in Memphis, TN.

ER is located 1/2 mile from the Interstate (I-65) with easy access and a large turnaround area for larger vehicles used in pick up and delivery of equipment. ER is not inside any municipal jurisdiction which would restrict the type of business being conducted. The location also benefits from easy access to hotels (1/2 mile), banks (less than 1/4 mile), groceries (1/8 mile), repair shops (1/4 mile), service stations (1/8 mile), and a parts supply house (1/3 mile).

Currently, there are no environmental concerns, but the company hopes to be able to have a repair shop located on the premises at which time any environmental concerns will be seen to. ER’s current hours of operation are from 8:00 a.m. until 5:00 p.m. However, the company does receive after hours calls and provides assistance as needed. Work hours have sometimes extended from 5:00 a.m. to later than 6:00 p.m. as needed.

2.3 Past Performance

The following is the company’s past three years of performance since start-up.

2.4 Future Facilities

There is 1/2 – 1 acre of additional property directly to the north side and is available for the construction of a storage/equipment yard if necessary. Mr. James has worked with a steel building construction company and is able to purchase items to construct a building at cost or at a sufficient discount that it would not be necessary to use the greater portion of the loan for building needs. The estimated cost of building is expected to be between $10,000 and $13,500. ER has access to a main highway with concrete entrances to and from the property.

ER sells and rents heavy equipment such as dozers, backhoes, excavators, and trenchers, as well as small home use, and construction equipment such as tillers, augers, and chain saws. ER takes pride in having brought several new items to this area that were otherwise unknown, such as the spreader/grader and Ramrod products.

ER has obtained the authorization to be a distributor for Hancor Pipe, Stone Equipment, Pro-Cut Diamond Products, Echo Lawn Care, Compact Excavators, and Skid Steer Loaders. The company is the only authorized distributor for the South-Tennessee area for Ramrod Equipment and Komatsu Forklifts.

3.1 Product Summary

Interstate
ER carries a range of Interstate equipment including:

• Megatron Plus – 72 month;
• Megatron – 60 month;
• Light truck and van (LTV);
• Interstate – 50 month;
• Extreme performance;
• Interstate – 50 month (imported cars);
• Special use – lawn and garden, etc.;
• Marine/RV – 12 volt;
• Commercial – Very HD 12 volt;
• Commercial – 6 volt;
• Commercial – 8 volt special duty.

Komatsu
ER carries gasoline, diesel, LPG, and electric forklifts from Komatsu. The benefits of Komatsu products include:

• Low noise designs reduce operator fatigue;
• Non-asbestos brakes;
• Open mast designs for excellent visibility;
• Heavy-duty air filtration systems with high air intake for extended engine life;
• Easy access to mechanical components.

Ramrod
ER carries a series of Ramrod Taskmaster products that are designed for any task. They include:

• The post hole auger (9″ and 12″) – can dig up to 60 holes in one hour;
• 32″ forks – mini fork lift;
• Leveller – for back landscaping;
• The trencher – the attachment of choice for digging trenches;
• Hay and mower fork – horse and cattle stall cleanup;
• Scattrack. ER carries a series of mini excavators and skid steer loaders with various attachments;
• Hydraulic breakers – for breaking concrete, rock, or other hard surfaces;
• Trenchers – for installing electric lines and underground cables;
• Pallet fork – for handling heavy palletized material;
• Grapples – for clean up of loose, bulky, or baled materials;
• Augers – for digging holes and wide trenches in tight areas;
• Angle blade – for grading;
• Mini excavator – for construction, landscaping, and utility applications;
• Trimmers and bushcutters and accessories;
• Tiller/Cultivator;
• Power blowers and accessories;
• Hedge clippers;
• Power pruners and accessories;
• Chain saws;
• Safety accessories.

3.1.1 Future Products

ER plans to increase its current inventory and suppliers while adding new product lines available on the market. ER also plans to be able to offer specials such as manufacturer’s discounts that would entice potential customers to ER, while at the same time retaining a good working capital within the company.

Stone
ER anticipates carrying a series of Stone products including:

• Stomper;
• WolfPac asphalt rollers;
• Rhino ride-on vibratory dirt rollers;
• Bulldog trench rollers;
• Hydroblend continuous mixers.

3.1.2 Product Support

ER is also listed on the bidder list for several states and receive bid packages by mail, fax, and email which is checked daily. The company is currently on the Atchafalaya Basin Development Committee mailing list and is working with the Henderson Area Committee.

The company expects to participate in a variety of different industries, including commercial and residential construction and farm machinery. The following sections will describe the industries in which ER hopes to compete.

4.1 Target Market Segment Strategy

ER currently has customers in the industrial and commercial fields, petro-chemical plants, contractors, sub-contractors, oil fields, and municipalities, with expansion potential in other areas. The Market Analysis table below gives the total potential number of businesses that could rent or buy our equipment in the local area.

4.2 Market Growth

Most of ER’s client industries such as the petro-chemical and farm industries have flat or very slow growth because these are mature or declining industries. However, often times there are other factors that make them attractive in the long run. The farming industry is heavily subsidized by the government and many of the farms in the local area are small plots with less than 100 acres. This means that most are poorly capitalized and seasonally require heavy equipment for planting and harvesting. This makes for an excellent cash-cow type client.

The one industry that can be counted on to grow significantly for the short-term is the contractor/commercial construction industry. The housing boom of the past five years has produced annual growth rates ranging from 5-10%. In evaluating our total market we plan to concentrate on this industry as our primary target market.

4.3 Marketing

The overall marketing plan for ER’s products and services is based on the following fundamentals:

• The segment of the market(s) planned to reach.
• Distribution channels planned to be used to reach market segments: television, radio, sales associates, and mailings.
• Share of the market expected to capture over a fixed period of time.

Market Responsibilities
ER is committed to an extensive promotional campaign. This will be done aggressively and on a broad scale. To accomplish initial sales goals, the company will require an extremely effective promotional campaign to accomplish two primary objectives:

1. Attract quality sales/service personnel that have a desire to be successful.
2. Attract customers that will constantly look to ER for their projects.

In addition, ER plans to advertise in magazines, newspapers, television, radio, and on billboards throughout the state.

Promotion
In addition to standard advertisement practices, ER will gain considerable recognition through these additional promotional mediums:

• Press releases sent to major radio stations, newspapers, and magazines.
• Radio advertising on secondary stations.
• Incentives. As an extra incentive for customers and potential customers to ER’s name, the company plans to distribute coffee mugs, T-shirts, pens, and other advertising specialties with the company logo. This will be an ongoing program for the company, when appropriate and where it is identified as beneficial.
• Brochures. The objective of brochures is to portray ERs’ goals and products as an attractive functionality. It is also to show customers how to use the latest in technology as it relates to construction and building services. ER will develop three brochures: one to be used to promote sales, one to use to announce the product in a new market, and the other to recruit sales associates.

Investment in Advertising and Promotion
For the first year of operation, advertising, and promotion is budgeted at a combined total of $14,000. A fixed amount of sales revenues will go toward the state ER advertisement campaign. On an ongoing basis, ER feels that it can budget advertising expenses at less than 10% of revenues to ER.

4.3.1 Pricing

Currently, ER maintains a commercial credit department for business customers with a 1% net 30-day limit. This loan will enable the company to establish its lending ability but will be structured so as not to hamper its ability to assist other customers (due on receipt with approved credit references). Most of ER’s customers choose to deal with their own financial sources, however ER does have several financial sources to choose from, thereby giving them references should it become necessary to do so.

The company offers competitive prices, which are subject to review when necessary. ER has done sufficient work in this area to know that it can place a markup on merchandise and still retain sufficient funds to be competitive. Knowledge of market and competitor prices gives ER the advantage of pricing in-line with competitors. ER suppliers have and will continue to supply products that enable the company to meet the customers price range.

Most companies have a 15-20% markup on their merchandise. Having worked for most of the larger companies in the area, Mr. James has an advantage of knowing which companies are firm with the prices and how much others will decrease their prices. Several companies do not have a working list of rental prices and change with the market thereby causing a delay of several hours or even days to allow for a check of existing rental rates.

At ER, pricing is derived from an American Rental Association (ARA) formula used to price sales and rental items in relation to cost and resale/use value.

4.3.2 Marketing Communications

The company’s promotional plan is diverse and includes a range of marketing communications:

• Trade shows. Company representatives will attend and participate in several trade shows, such as Lagcoe.
• Print advertising. The company’s print advertising program includes advertisements in the Denton Parish newspaper, church bulletin, Denton Economics 101 directory, and restaurant menus in Memphis and Denton Parish.
• Festivals. The company plans to take part in various local shows.
• Additional methods include:
• Yard signs – changed on a two week rotating schedule.
• Magnetic signs – for trucks.
• Business cards.
• Sponsoring baseball and soccer teams.

4.4 Industry Analysis

Industry Description (information provided by imarketinc.com)

Market size statistics – Industrial trucks and tractors
Establishments primarily engaged in manufacturing industrial trucks, tractors, trailers, stackers (truck type), and related equipment used for handling materials on floors and paved surfaces in and around industrial and commercial plants, depots, docks, airports, and terminals.

Market size statistics – Farm machinery and equipment
Establishments primarily engaged in manufacturing farm machinery and equipment including soil preparation machinery, for use in the preparation and maintenance of the soil, planting and harvesting of the crop, preparing crops for market on the farm, or for use in performing other farm operations and processes.

Market size statistics – Construction machinery
Establishments primarily engaged in manufacturing heavy machinery and equipment, such as bulldozers, concrete mixers, cranes.

4.4.1 Market Statistics

Market Description (information provided by S&P and imarketinc.com)

The market in ER’s area is very large with new construction being at an all-time high. ER is in need of inventory to be able to supply the local area and neighboring communities. The company has been able to sub-rent some equipment but would like to obtain certain items to put into its fleet thereby increasing profit margins. ER plans on offering a substantial line of equipment for rental and sales to meet customer needs as well as service for the equipment and those owned by others in the area.

The housing industry has proceeded at a red-hot pace for several years running. An all-time record was set in 1998, when 886,000 new-site single family homes were sold. That represented a 10% gain from the robust total of 804,000 homes sold in 1997, and an 8.1% rise from the prior record of 819,000 units in 1977. Single-family housing construction accounted for $47,539 million of the total $124,953 million generated in the industry.

Home sales were strengthened even further during most of 1999’s first 10 months. In that period, new single-family home sales increased by 4.8% on a year-to-year basis, to 791,000 units, according to the U.S. Department of Commerce. Through October 1999, seasonally adjusted sales had exceeded 800,000 on an annualized basis in every month since the start of 1998.

The record setting string of home sales since the second half of 1997 has forced builders to pick up the pace of their construction activity. During 1998, total starts increased by 9.7% to 1.62 million units. Starts for single family units moved up 12% for the year, and those of multi-family units were ahead by 1.5%. As an indication of building activity at year-end 1999, housing starts in November 1999 came in at a seasonally adjusted annual rate of 1.6 million units.

Market size statistics – Single-family housing construction
General contractors primarily engaged in construction of single-family houses.

Market size statistics – Residential construction, nec
General contractors primarily engaged in construction (including new work additions, alterations, remodeling, and repair) of residential buildings other than single-family houses. This includes hotels, motels, apartments, and multi-family homes.

Market size statistics – Heavy construction, nec
General and special trade contractors primarily engaged in the construction of heavy projects not elsewhere classified. This includes canal, drainage system, athletic and recreation facilities, land preparation, rock removal, waste water and sewage treatment plant, and trenching construction.

Market size statistics – Bridge, tunnel, and elevated highway construction
General contractors primarily engaged in the construction of bridges, viaducts, elevated highways, and pedestrian and railway tunnels.

Market size statistics – Highway and street construction
General and special trade contractors primarily engaged in the construction of roads, streets, alleys, public sidewalks, guardrails, parkways, and airports.

Market size statistics – Nonresidential construction, nec
General contractors primarily engaged in the construction (including new work additions, alterations, remodeling, and repair) of nonresidential buildings other than industrial buildings and warehouses. This includes commercial, institutional, religious, and amusement and recreational buildings.

4.4.2 Competition and Buying Patterns

ER’s closest competitors are located in Memphis Parish. They include the following five companies:

• CBC Equipment;
• Northern Equipment;
• Jones Rental Service;
• Rental Service Center;
• Memphis Rental.

Being located in or near Memphis, they charge a drop off and/or pick up fee. ER can, in most cases, wave this fee which will allow the customer more funds to purchase/rent additional equipment.

The company plans to rapidly develop marketing alliances with industry leaders and pursue new sales of homeowner, commercial, and industrial equipment. The market strategy is to capitalize on ER’s ever-increasing customer base and contacts by offering the latest products and personalized service.

The company’s goal in the next year is to obtain financing which will allow for expanding the shop/service area with up-to-date servicing equipment, hiring additional employees, and obtaining a delivery truck as well as rental and sales inventory for all aspects of the company’s customer base.

The company’s goal in the next two to five years is to hire additional employees, concentrate on customer service, and promote the company and the environment that has allowed for this increase in service by way of discounts and promotional specials that will benefit the company and the customer.

5.1 Competitive Edge

• Obtain financing. The company is currently working to obtain financing that will enable it to carry out its operations.
• Expansion. ER is currently in need of property for expansion and display, rental and sale, and to increase its product line. Storage is a constant problem without a building and additional land to met ER’s current needs.
• Purchase additional equipment. Most previous equipment purchases have been for resale/consignment, and the markup has not allowed for a great increase in supplies.
• Hire more employees. The company plans to employ two people from the area, in positions within the shop. They will be responsible for maintenance, repair, and delivery. This will enable Mr. and Mrs. James to focus on the core of the business.
• Increase advertising. The company is currently working to expand its advertising campaigns. The company has designed a tri-fold brochure that will make people in the area aware of its product offering and how it can meet their needs.
• Establish more alliances. ER has contacts with several companies with floor plans, which will enable the company to stock several of their items for resale. The company plans to purchase some of their products, leaving them to furnish the display equipment.

5.2 Marketing Strategy

The company has strategic alliances with the ARA. This alliance is valuable to ER because the company gets to air television ads, and they are valuable to the ally firms because they are promoting a local company and this helps in community development. ER plans to also form strategic alliances with Internet sites, area publications, and other equipment dealers.

The following table and charts show the Projected Sales Forecast for Equipment Rental.

The company’s management philosophy is based on responsibility and mutual respect. ER maintains an environment and structure that encourages productivity and respect for customers and fellow employees.

7.1 Personnel Plan

ER’s management is highly experienced and qualified. Its key management team includes Mr. David James and Mrs. Sally James.

Jointly, they are responsible for processing quotes, arranging financing, as needed, scheduling invoices for pickup and delivery, and contract sales/rentals.

Descriptions of the management team and responsibilities are as follows.

Mr. David James. Mr. James has 10 years of marketing experience, 15 years rental/sales experience, and 15 years mechanical experience.

Mr. James makes all decisions concerning equipment purchases, as this is his area of expertise. Mr. James is in charge of obtaining all equipment for sales and rentals, completing contracts, working up quotes, setting up delivery of merchandise, arranging financing as needed, contacting customers, and verifying pickup and delivery.

Mrs. Sally L. James. Mrs. James has 10 years secretarial experience and 12 years accounts payable and receivable experience.

Mrs. James answers the phone, faxes, does all the computer work, files any monthly or quarterly tax forms, compiles correspondence as needed, accounts receivable, accounts payable, meets with a bookkeeper for end of year tax return, keeps all office needs running smoothly, filing, typing, copies, and is majority stock holder in the company (45%).

Future plans call for the hiring of a mechanic and shopman with hopes of adding a truck and delivery driver shortly there after from the area, with additional office/shop personnel to be added as needed.

On occasion part-time personnel will be used and job training provided through the area schools for those interested in this area of the job market.

ER was capitalized with $5,000 when it was formed in May 1997. A strong knowledge of the area and supply and demand needs led to the formation of the company. Most items purchased to this date (truck, trailer, computer, office supplies, envelopes, and stationery) have been financed through personal funds, and a $4,000 line of credit with Hibernia Bank.

ER’s first sales placed $5,145 into the business account, most of which was used to pay off initial purchases with the balance being used for office and truck expenses such as telephone bill, postage, and fuel. As of April 1, 2000, the truck has been paid in full along with several of the smaller home use items. The company has generated sales in the amount of $52,490 with cost being $38,870 and a profit of $13,620 (97-98 Income Tax Return).

Funding Requirements and Uses
The company is seeking a loan/credit line in the amount of $300,000 for the purpose of expanding the business. Expansion plans include the purchase of additional land and construction of a larger shop/service area, increase rental inventory, and hiring of additional personnel including a mechanic and delivery driver. The table below provides a breakdown of the use of funds.

Use of Funds

Shop equipment to include: air compressor, air tools and accessories, blow torch, welding machine and accessories, 1 1/2 ton chain hoist, oil/water separator, holding tank, assorted hand tools, washing vat, chain saw sharpener and repair accessories.

Rental inventory to include: Trash and diaphragm pumps 2 ea. 2″ and 3″, 3/4″ submersible pump and accessories, 3 hp. concrete vibrator, 2-48″ concrete power trowels, Case 580L or JD 310 Backhoe, small trailer and larger trailer, 1-ton Ford F350 or F450 Diesel delivery truck, air compressor, 90 lb. air hammer and accessories, rotovator for tractor, 1 push mower, 1 lawn tractor.

8.1 General Assumptions

The following table lists the general assumptions.

8.2 Key Financial Indicators

The following chart shows the important benchmarks for Equipment Rental.

8.3 Break-even Analysis

The table and chart below contain the Break-even Analysis for Equipment Rental.

8.4 Projected Profit and Loss

The Projected Profit and Loss can be seen in the following table and charts.

8.5 Cash Flow

The following table and chart are the Projected Cash Flow figures for Equipment Rental.

8.6 Projected Balance Sheet

ER’s projected balance sheets for 2000-2002.

8.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 7359, [Equipment Rental and Leasing, nec], are shown for comparison.