CED

July 2013

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On the Numbers The Risks are Real AED's ongoing work to help you strengthen your rental operations, beef up profitability, and navigate tax law compliance By Garry bartecki We have been very busy here at AED ever since springtime rolled in. And what a wet spring it was – needless to say, construction in certain segments of the Midwest was delayed due to weather. Some of the major things we've been working on include: n Hosting Round 1 of the annual CFO Conference – highly emphasizing rental n Completing the annual Cost of Doing Business Survey and Report – released in June n Planning our financial webinar series for 2013 n Having several conferences dealing with IRS issues Member participation in all areas seems to be increasing, which I hope is directly related to dealer business activity. CFO Conference The CFO conference again concentrated on the rental aspects of the business. Tax policy and current IRS issues were discussed on the morning of Day 1. This included a session on the state and local tax traps associated with rental. We have some very confusing issues to deal with, and AED's Washington office is making the rounds to see if we can clear some of them up. We also reviewed the standard rental metrics developed by ARA. It pays to measure your rental results using these standards, because that is what the public rental companies use and what banks and finance companies will use to review your rental activity. Think about it: Wouldn't it be nice to know why your rental income increased – was it rates or utilization? The Rouse Report uses these metrics to report on Original Equipment Cost (OEC), Time Utilization (TU), Dollar Utilization ($U), Fleet Age and Changes in Rental Rates (%RR). Rouse explains how their formulas are calculated at the end of each report section. Time to do some homework on these metrics if you plan to manage a rental operation. We also discussed how a sophisticated enterprise system can help manage rental operations. It is amazing how the right system can supply data and analysis on a real-time basis. Rental maintenance can make you or break you, especially if major unplanned maintenance issues arise. So we discussed how extended warranty programs can be used to mitigate this maintenance risk. Eli Lustgarten reviewed the industry and economic data with us to help us understand where we are and where we are going. It looks like a slow recovery is in progress. Joe Box, rental industry analyst from Key Bank, provided an in-depth discussion of the rental markets, rental convergence, rates, fleet purchases, used equipment prices, the dealer versus rental company model, and the highlights gathered from the public rental companies. And no CFO Conference today would be complete without informing participants about their requirements and timelines related to Obamacare (ACA). Every AED member absolutely needs to go through an analysis to see where they will come out once ACA is implemented. Certain disclosures and information must be provided to employees in the fall of 2013. Are you ready? We closed the program with an open forum with Fred Leach, GM at Cisco Equipment in Texas, exploring how actual rental transactions are handled in the field. A busy two days but a lot of fun as well. If you missed it, you can sign up for Round 2, Oct. 10-11. CODB 2013 The 2013 CODB containing 2012 data is now available. The report is interesting because both the Typical Dealer and High-Profit Dealer are similar in sales volume but produce very different financial results. For many years High Profit (HP) dealers were usually larger in size and we would hear feedback that Typical dealers could not duplicate HP results. Guess that does not fly any longer. Make sure you get a copy of the 2013 report and compare it to prior CODB reports as well as your internal statements to see how you are doing compared to the survey participants. If you didn't complete the survey you'll pay a small fee for this data, but it's worth it. On the tax side, we continue our efforts with the IRS on how to account for dual-use property. We are also dealing with the nature of rental transactions and whether they are part of passive/ investment income subject to the new 3.8 percent tax embedded in Obamacare. As you can see, AED members have numerous issues to deal with beyond their own company walls. I hope you have a basic understanding of the issues discussed here and are prepared to comply with the various requirements to reduce your tax and financial risk. AED is here to help maintain the value of your business. If you have questions or problems to discuss please give me a call: 630-574-0650, ext. 323. Garry bartecki (gbartecki@ aednet.org) is AED's vice president of Finance. July 2013 | Construction Equipment Distribution | www.cedmag.com | 63 63_On_the_Numbers_KP.indd 63 6/27/13 2:26 PM

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