RM Online - Getting started

Editor's Note: This is a primer we put together for the rank newcomer who's contemplating getting into the rental business. It presumes a knowledge base of next to zero and complete flexibility in the choice of location, market and inventory - so it may seem a little naive and unrealistic. But it also recognizes that this is a vibrant, growing industry full of potential and attractive to people with determination and energy to invest along with money and time, and they may need a basic checklist to start with.

So you're thinking about going into the rental business, are you? You see great potential for yourself in a growing industry loaded with opportunity, a business in which you can be your own boss and realize - even in this day and age - the classic American Dream story: you see a need, you fill it, and you build rewards commensurate with your willingness to work long hours. (Don't underestimate that "willingness to work long hours" part.)

"I've been in this business for nearly 30 years," says A.R.A. President Frank Wilson, owner of Frank Wilson's Tents & Events in Augusta, Ga. "There's never a dull moment and as far as I'm concerned the opportunities are still almost unlimited. The rainbow is long and we haven't seen the middle of it yet."

So how do you get started in the rental business?

A.Let's start with some basic considerations that demand a lot of careful thought; for example: what are your aptitudes, interests and experience - and therefore what segment(s) of the industry should you focus on? What market(s) will you serve?

Construction equipment? Heavy or light? Industrial (generally manufacturing plants) and commercial accounts? General tools for the light contractor? The more skilled DIYer or the homeowner/novice? Maintenance and custodial workers? Government, public works? Lawn/garden, landscaping, grounds maintenance? Event and party markets? - private individuals, corporate/civic organ-izations, caterers, party planners? Or will you specialize in a very narrow market segment, such as cranes or gensets or tents? Perhaps you are a high-reach contractor and want to branch out into rental. Perhaps your family has an existing rental company and you want to carve out your own niche by setting up an offshoot specialty operation.

Or will you open a general rental center to address some combination of these markets? In which case, you have to determine the proportions of these segments in the whole: that is, what is your business mix? Historically, most new, privately owned, small rental companies have started as general rental centers; the broad mix gives them wide appeal to various markets and cyclical protection against seasonal swings and market forces - if housing starts plunge, the rental company that focuses on excavation and concrete contractors will suffer now; the one that serves only DIY homeowners and the lawn and garden market will suffer later.

B.What about the location? What size and kind of city, town, neighborhood? Urban, industrial, residential? Main street, side street, expressway view? Near what other kinds of businesses? What kind of company should you keep? Is visibility important? (From relatively unimportant to moderately important for construction rental houses, important to very important for tool rental centers, very important to vital for most party companies - but some event-rental specialty operations may be more like construction equipment rental companies for which location and visibility may not actually matter very much.)

Wherever you are, access and parking will probably have some importance. What about outdoor inventory considerations? And what facilities will you need? - repair area, wash racks, environmental regulation compliance facilities, machine tools?

Delivery trucks, service trucks - are you going to offer field service?

Will you eventually expand the retail component of your company? Have you anticipated zoning issues?

All of these considerations will have some bearing on location.

According to A.R.A. Deputy Executive Vice President Joe Lynch, picking the right location for a rental operation is mostly a matter of due diligence. Research the area thoroughly to determine how much competition there is and what other businesses nearby may complement yours, or detract from it.

"Pick an area you can live with but also check out the competition," Lynch advises. "You will have to de-cide if it's better to locate across the street from your toughest competitor or across town. Check with the Chamber of Commerce to see if the one of the big home centers is coming to your community - many have rental departments of their own."

C.You have your market picked, so now pick your inventory. But how do you decide what to carry, and how to split between rental inventory and retail sales items, such as small tools, safety goggles, gloves, drill bits, etc., as well as consumables such as sandpaper or paper goods?

Step No. 1 is to join the American Rental Association and get everything A.R.A. has available on inventory planning, like the A.R.A.'s beginning inventory list. Contact the Program Services Department (800) 334-2177 (ext. 245), fax (309) 764-1533, or via e-mail: diane.hamann@ararental.org. Go to the Annual A.R.A. Convention and Rental Trade Show in February (next one: Orlando, Fla., Feb. 26-March 1, 2001) and the A.R.A. city conferences (San Antonio, July 10-12, and Portland, Ore., Sept. 17-19). Read Rental Management, especially the Counter & Yard Management and Product Spotlight pages. Use the Internet - see the A.R.A. Web site: www.ararental.org. And talk to other rental dealers - every one you can. That's why joining the A.R.A., as well as a state or local A.R.A. group, such as the A.R.A. of New Jersey or A.R.A. of Chicagoland, is so important. You can't talk to every rental dealer out there, but involvement in A.R.A. organizations will extend your reach. Go to the meetings, talk to the people: network.

Lynch says the best way to decide on appropriate inventory may be to ask the people you will be renting to. Ask the construction companies in the area what kind of equipment they use - or better still, the kinds they want to use and can't find. A prospective event rental company should consult with catering companies, corporations, wedding planners and florists to find out what people are renting.

"It's also a good idea to stock some retail inventory along with your rental stock," says Lynch. "People will pay for convenience, and if you have accessories for sale such as cement boots, safety glasses and gloves, many will buy them from you rather than get them down the street for less money. The idea is to create a profit center for yourself and a service center for your customers.

"Some people in the rental business refuse to carry any retail, while others claim that without some retail product you won't survive. But selling a few related accessories makes sense. If you're going to rent sanders, you should probably sell the paper and polish that go with them."

And always, always follow your business plan (see page 40) - plan the work, work the plan.

D.Be ready to deal with the industry's No. 1 challenge: finding good employees who will stay and add to your business. If you can find people with any knowledge of rental and the specific market(s) you want to serve - say, people who have worked for carpenters, masons, painters, decorators, small home-improvement contractors, hardware stores, etc. - consider yourself blessed. If not, prepare to train your people well: you will probably have to develop your own staff of experienced, knowledgeable people who work well with customers, because they do not grow on trees, and it will not happen overnight. Be prepared for a constant, frustrating challenge. And when you do get that employee with potential and interest, do everything you can to retain that person. (See RM, January 2000, "Keeping Good People," page 50.)

"For me the ideal employee would be a clean-cut guy who had previously worked in all aspects of the construction business," says Scott Tolar, who started from scratch in March 1997 with the Tolar Rental Store in Mooresville, N.C. (See the October 1997 Rental Management cover story.) "A person like that could be taught the people and computer skills he needs to work here, and I would hire him on the spot. The greatest mistake I've made so far was in underestimating the labor issue."

You may be able to get by with just two or three people in a small tool rental store, but don't try it in a party store. The event and party rental business is a very different animal, and very labor-intensive. A tool or construction rental company might need only three or four people out front, but a party store doing the same dollar volume might have a dozen or more involved, some in the showroom and more in the warehouse loading trucks, or in the yard washing tents, or in the back laundering linens, or out doing deliveries or setting up chairs.

And whatever segment you're in, do whatever it takes to make sure your employees follow safe procedures: one lawsuit can put an end to whatever hopes you started with.

E.Finding capital: where do you go for financing? How do you get bank loans? See the article on page 44 for starters. Financing your operations will occupy a great deal of your time throughout your career, so get started on the right foot.

Depending on the market, the competition and the critical inventory requirements, industry wisdom says a minimum party store startup investment might be $100,000, but it's possible to get up and running for far less than that.

However, a word of warning: under-capitalization can be the kiss of death. (See the article on page 38.) You pretty much get what you pay for. Arrange enough capital to be able to pursue the business seriously.

This applies to any rental business, but when you get into larger volumes of rental inventory - and heavy construction equipment, in particular - the capital requirements can get pretty big.

All this cries out for a plan.

F.Write a clear, well-considered and comprehensive business plan for yourself. See the articles on pages 40 and 44, and also the September 1998 Rental Management - the whole issue was devoted to business planning.

Include an exhibit of your sources of revenue and how you expect them to contribute to the revenue stream. For example, a top-end skid-steer loader may run as high as $50,000, fully equipped, whereas a top-quality lawn mower might go for $500; but the rates and dollar volumes of return will be very different, based on market, utilization and the cost of owning the asset (maintenance, depreciation, storage, perhaps delivery and other costs). The lawn mower will also have a pretty short life span compared to the skid loader. Your business plan should be able to account for how you expect these capital assets to perform financially; i.e., what their contribution is. That is something you can monitor over time and make course adjustments if your earlier expectation is wrong.

Your business plan should cover promotion: how you plan to get your name in front of the customer. Advertising - newspaper, TV, radio, billboards, Yellow Pages? Open houses? Workshops, DIY seminars? Web site? Direct mail? Telemarketing? Fairs, home shows, seasonal mall events? (See Rental Management's advertising and promotion articles from the Kragie/Newell Agency, which run in most issues of the magazine - this month, page 65.)

Picking a name for your business is part of your promotion plan, too. What should your name say? "A-1" or "AA" or "AAA" so it's first in the phone book? Or does your own name have recognition in the community? Never pick a name for any reason other than its ability to draw in the business you want to reach, and do so consistently, over time. Business is not about ego; it's about money. Pick a name that has competitive advantage in it. Something clever and memorable? Maybe; clever is OK, but memorable is far better.

Your business plan, in fact, should set forth exactly what your competitive advantages are, so you always have them in the forefront of your vision, and anybody else who reads your business plan - the banker you're trying to get money from, for instance - can see that you are focusing on the competitive advantages that you have recognized and developed in order (a) to penetrate a certain market that you have defined and (b) to succeed consistently in it.

Use your business plan to monitor your progress, too. In rental, you have an advantage that many other businesses do not have - a special characteristic that helps keeps tabs on how you're doing.

"Many people get into rental because they're attracted to a business that trades in tangible assets," says Richard Paquette, current A.R.A. board chairman and owner of Pyramide Rental Centers, Chateau-guay, Quebec, Canada.

"As the proprietor of a rental center, you see with your own eyes how your inventory is working for you and making you money. The business is physical in nature and your successes are shoved in your face along with your failures."