The conflict between 'value' & profit

This is an attempt to help avoid confusion when you go to a financial institution for a loan or to sell your business. Big brother - aka the IRS - likes to collect its taxes on a regular basis. Our job is to keep the IRS on a diet. So here is a short discussion on value vs. profit.

The value of a business is generally set by the marketplace. But the buyer and/or the seller usually prefer some calculations showing what the assets are worth at fair market value (net realizable value), plus what the earnings after taxes would yield when capitalized at a rate suitable for your business, thus producing a capitalized earnings value. There are many ways to calculate the valuation of a business and these are only two.

During each year of operation, many businesses attempt to keep income taxes low by having enough deductions, including depreciation expenses, to offset revenue or income. How you do this can affect your valuation. If you have large increases in assets like cash, equipment, accounts receivable and other inventories, your value will generally go up. However, if deductions are in wages, advertising and other non-asset-related expenses, then the value of your business will probably go down. In both cases, your yearly income taxes will be minimized since your profit is low.

Simply put, to keep income taxes low, a balance needs to be struck be-tween investment in assets to increase the business's value and operating expenses. One of the major links between the value and profit calculation in the equipment rental business is the purchase of equipment and its associated depreciation expense, plus the "cost of goods for sale" for items normally for sale. How much investment in assets such as equipment vs. non-asset purchases is the key.

At certain times during the life of a business, it has to be decided whether to substantially increase or not increase its value. Here is one plan to maintain this balance. First, have some overall objectives stating how you want the value of the business to change and how the expenses, including taxes, are to be managed. Second, run the numbers on a spreadsheet for "what if" situations, or just shoot from the hip, knowing the relationships among the various factors. (I'm sure there is some middle ground here.) Third, make the decision, observe the resulting data and get ready to revise the plan if it does not meet expectations. Without a plan, the value of the business will be in question when you go for a loan or to sell off your business even though your profits have been regular and/or generous.

Is rental your true path for work?

Many "old-timers" in the rental industry are leaving as a result of age, sale of their business, retirement (unstructured work), downsizing of the organization, being pushed out by their children in the business, etc. Here are some other guidelines as to why you may be a candidate for a career change.

The following is a partial list of some important considerations about your status in any job or career. First, are you really enjoying your work and do you still take pride doing it? Second, do you feel little or no frustration in carrying out all the job's responsibilities? Third, do you take time to celebrate your achievements both at work and at home? These are only three simple questions, but they are a starting point in evaluating your current status of satisfaction in the very complicated and complex equipment rental industry.

Those who have been in the rental business for some time realize it takes a certain personality with perseverance and a productive and sometimes "sane" attitude to result in a good match for the requirements of this type of business. The common phrase: "Been there, done that," may be appropriate here; or, "If you haven't got it - you haven't got it," may be meaningful here also! What is your true path for work?

More on dock heights

This is an addendum to the Nov-ember tip on loading dock heights. Rafael Garzarelli of Howe Rental & Sales in Salt Lake City sent me a photo of a loading/unloading ramp. It seems that this particular rental store is on very flat ground and the photo showed an adjustable ramp system that can accommodate many heights.

To get the adjustable height, a hydraulic system is used. The ramp in the picture appeared about 20 to 30 feet long from the ground level to the lip of the ramp at the docking end. As for the ramp's cost, I don't have a figure, but maybe Rafael can point you in the right direction. This is another option for getting that equipment on and off trucks without a broken back or building a new facility, either of which can be very costly.