Starting an equipment rental business

[Brute_200]

I am new to the forum but have been spending a lot of time reading on here and there is a lot of knowledge to be learned. I will graduate within the next 5 months with a degree in construction management and my goal is to one day run my own show.

I know the best thing to do would be to go work for a rental company and gain experience, etc. Though these companies often want you to sign waivers stating that you will not leave and start up your own and compete with them type of contract.

However, I have done a lot of market research and my desired location is of a city with 60,000 people or so and with only one rental place (sunbelt..). I understand that the rental industry has its ups and downs, and people will treat your equipment as, "oh well, it's just a rental." I am not looking to target the weekend warrior market, more so of the contractors for that reason. In my area I notice the use of telehandlers and boom lifts on almost every job. I would think it would be of best interest to start up with a couple of these. I would also need to obtain my CDL licenses and be able to finance the proper equipment to transport these.

I would like to be able to take off on this as a full time gig because I understand the importance of customer satisfaction and the routine maintenance of equipment and it's one of those things I believe I need to start young despite lack of experience because I doubt I would be able make the level of financial sacrifice later in life once I have a wife and kids one day.

I would like to form an LLC with a strong business plan, hire a lawyer to write up a good contract to use, be able to consult with a CPA, as well as obtaining useful software to help me run the business and watch my cash flows and equipment utilization and what not. I know insurance would be another key part too. Keeping my overheads low would be crucial as well. I have done basic mechanic work before, but by no means am I skilled enough to make a jobsite visit and get a downed piece of equipment up and running. So that's where I think I would need an employee or would it make more sense to be able to sub out that work on short notice, if that's even possible? This is something I am passionate about and would really like to take off with it. Though, I think my biggest obstacle would be the startup cost. I am not looking to have the ideal storefront along a major highway setup yet because I will need the funding for a couple pieces of machinery and the needs of hauling it.

How do you think is the best way to obtain the funding? I have a full time job as a PM lined up after I graduate but will not be able to save up the proper money to do all this.

I would just like to pick your guys brains on this subject. Any advice or tips would be greatly appreciated.

 

[BigGreen74]

Say you're buying a new house (or two). Open up your rental service in south america or africa.

Or if you wish to be able to return to the United States within the next 10 years, look at business loans. I'd recommend you try and learn as much as possible before you do, it's a big liability financially.

If you were a startup you could seek out seed funding and investors, however that doesn't seem to be the position you're in.

You could also try financing the equipment yourself, while it may suck, treat it how renters do, make more per month than what you pay.

If you know anyone who was in the business get them to mentor you. That'd put you way ahead of the game.

Or wait for more replies from those who rent equipment themselves.

 

[92U 3406]

As a mechanic who has spent a couple years at rental shops I will tell you with full honesty that it doesn't matter who you rent to, contractors or individuals, they will beat the **** out of the equipment. Also be prepared for a lot of stupid service calls because of clueless "operators".

My best advice is to rent top notch gear. You want equipment that is going to work, not break down 2 hours into the first day. Image is everything and you want people and contractors to know you have the best equipment in town. When it leaves the yard to go on a job, the machine should be clean inside and out. No company wants to pay for a filthy machine with a cab full of mud and dust.

 

[chris pochari]

http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=1378 Lot's of info here. PM me if you need one.
If you show your investors/bankers all this info they will be impressed.
As far as funding I always tell people the average fleet value of a demo contractor is $4 mil, you need need to save 100k/yr for 40 years to fund your business. And that's for demolition, equipment rental must be even more. It's impossible to fund it yourself. Raising money through equity or debt is the only way. You need some partners with a experience. Since this industry is still highly fragmented and the top 4 players only have 22% of the market this is a perfect industry to go in and consolidate, it's profitable so there will be private equity money to get. Put together a plan and talk to some small equipment rental places and see if they are interested in doing a "rollup" where you merge a bunch of small companies together and create a larger company to take public to raise money and buy more companies. This "Rollup" strategy has been used by many industrialists like Wayne Huizenga of WM and Paul Verrochi of AMR. The name of the game is to grab market share, starting just another small company and having to compete with United Rentals might not make sense. This might sound crazy but since you're 23 (i'm around your age) and already talking about this it's very likely you might beat other people to it.
https://dspace.mit.edu/handle/1721.1/9219 A very useful thesis on the "rollup" strategy.
https://hbr.org/product/consolidati...service-industries-module-note/802192-PDF-ENG
https://hbr.org/product/united-rentals-a/414043-PDF-ENG
https://hbr.org/product/united-rentals-b/414031-PDF-ENGside
The key is to be knowledgeable on the business of it, read lots of case studies at HBR and talk to business guys in the area.
The key is to focus entirely on the business side and avoid being a technician, Like Michael Gerber said "work on your business not in your business"
I plan on starting a demolition company and I'm looking for a future partner with a heavy haul truck and trailer. PM me if you are interested. Of course Demolition is an entirely different story. Low profit and more competitive, but slightly less capital intensive.
I've thought about starting an equipment rental business, but it's so capital intensive that I dropped the idea to focus more on the niche market of medium sized demolition, I found a high reach excavator in the UK for $51,000 hoping my grandfather will help me buy it!. To bring in any significant revenue in equipment rental you need A LOT of machines.

 

[DMiller]

Another point in your strategy is to align to vehicles/machines in demand for the area. Look to the Sunbelt yard, how much of the larger machinery does not move, how much of the other stuff moves a lot. Don't get into a lot of boom lifts if there are few needy customers for them and a gut of them available. Bobcats/skidloaders, small loader/backhoe tractors, excavators and such cost a lot of initial cash where if sit a lot do not generate necessary income even if in high demand where too many yards rent them while few renters can afford them.

 

[Delmer]

Chris, How about some context for that last post?

If you show your business plan to any banker, they will NOT be impressed. Whether you're talking about a couple telehandlers, or "rolling up" the rental industry, NO banker is going to touch you without experience and capital (ie you've been in the business and have equity or money down).

You're basically talking about the equivalent of reinventing microsoft or facebook, except they had the advantage of low capital startups, you need all the capital from the start with no experience, how's that work???

Rental is a financing business more than customer service, upkeep, etc. It's not like landlording where you can start with a fixer upper and leverage one to the next. Rental equipment starts new and has to pay off quicker than it depreciates, race against the clock.

Sorry, Chris and Brute, I confused who was the original poster, but I'll leave this anyway.

 

[Brute_200]

As a mechanic who has spent a couple years at rental shops I will tell you with full honesty that it doesn't matter who you rent to, contractors or individuals, they will beat the **** out of the equipment. Also be prepared for a lot of stupid service calls because of clueless "operators".

My best advice is to rent top notch gear. You want equipment that is going to work, not break down 2 hours into the first day. Image is everything and you want people and contractors to know you have the best equipment in town. When it leaves the yard to go on a job, the machine should be clean inside and out. No company wants to pay for a filthy machine with a cab full of mud and dust.

92U 3406: Does the company you work for document all aspects of the equipment before delivery and have clauses in the contracts in regards to damaged equipment, and say a clean up fee if returned covered in mud? And how much time is typically spent on prepping equipment in between rents? Say you rent out a piece of equipment for a month or longer, do you have to make routine trips out there to the jobsite to grease her up and check her out and what not?

Another point in your strategy is to align to vehicles/machines in demand for the area. Look to the Sunbelt yard, how much of the larger machinery does not move, how much of the other stuff moves a lot. Don't get into a lot of boom lifts if there are few needy customers for them and a gut of them available. Bobcats/skidloaders, small loader/backhoe tractors, excavators and such cost a lot of initial cash where if sit a lot do not generate necessary income even if in high demand where too many yards rent them while few renters can afford them.

Dmiller: There is a lot of great potential information to be learned from the existing rental company in town, I agree. Though, I don't have time to stalk them. I'd been wanting to think of a way I could call in as a potential customer or so to find out useful information such as their most rented piece of equipment and whom they rent to the most but I am not sure how to ask that without bluntly doing so and probably getting hung up on lol.

Chris, How about some context for that last post?

If you show your business plan to any banker, they will NOT be impressed. Whether you're talking about a couple telehandlers, or "rolling up" the rental industry, NO banker is going to touch you without experience and capital (ie you've been in the business and have equity or money down).

You're basically talking about the equivalent of reinventing microsoft or facebook, except they had the advantage of low capital startups, you need all the capital from the start with no experience, how's that work???

Rental is a financing business more than customer service, upkeep, etc. It's not like landlording where you can start with a fixer upper and leverage one to the next. Rental equipment starts new and has to pay off quicker than it depreciates, race against the clock.

Sorry, Chris and Brute, I confused who was the original poster, but I'll leave this anyway.

Delmer: I am well aware that this business would need substantial amounts of start up capital. Becoming a successful landlord also requires a lot of capital if you're going to go in deep enough to make a living off of it. Though you do not have to fight with depreciation as much, but you do have to deal with the upfront down payments and long term mortgages.
Chris Pochari brings up a great point when he said, " the industry is still highly fragmented and the top 4 players only have 22% of the market" so it is definitely possible to make a living in this industry and once a company has a decent market share, the big dogs like sunbelt are known to buy out their market shares.

I understand that my lack of "years of experience" would be working against me. Therefore, I am looking to explore more options about obtaining this. I know you can also finance through dealers as well and if anyone has done that, I would love to hear about it. I am also by no means expecting to start out with a huge unrealistic fleet.

Chris: the roll up strategy is an interesting one but I am not looking to get into bed with anyone else, I do not hear good stories about partnerships. And thank you for the case study links. I agree that knowledge is power.

 

[chris pochari]

Chris, How about some context for that last post?

If you show your business plan to any banker, they will NOT be impressed. Whether you're talking about a couple telehandlers, or "rolling up" the rental industry, NO banker is going to touch you without experience and capital (ie you've been in the business and have equity or money down).

You're basically talking about the equivalent of reinventing microsoft or facebook, except they had the advantage of low capital startups, you need all the capital from the start with no experience, how's that work???

Rental is a financing business more than customer service, upkeep, etc. It's not like landlording where you can start with a fixer upper and leverage one to the next. Rental equipment starts new and has to pay off quicker than it depreciates, race against the clock.

Sorry, Chris and Brute, I confused who was the original poster, but I'll leave this anyway.

Actually I was surprised to hear that this "rollup" strategy even existed. It's not anything similar to high technology, it's all about market share, if you look at WM's (waste management) history you will find that they didn't really grow organically. The business world is fascinating, and risky that's why 99% of the popl will stay an employee.

 

[chris pochari]

92U 3406: Does the company you work for document all aspects of the equipment before delivery and have clauses in the contracts in regards to damaged equipment, and say a clean up fee if returned covered in mud? And how much time is typically spent on prepping equipment in between rents? Say you rent out a piece of equipment for a month or longer, do you have to make routine trips out there to the jobsite to grease her up and check her out and what not?





Dmiller: There is a lot of great potential information to be learned from the existing rental company in town, I agree. Though, I don't have time to stalk them. I'd been wanting to think of a way I could call in as a potential customer or so to find out useful information such as their most rented piece of equipment and whom they rent to the most but I am not sure how to ask that without bluntly doing so and probably getting hung up on lol.




Delmer: I am well aware that this business would need substantial amounts of start up capital. Becoming a successful landlord also requires a lot of capital if you're going to go in deep enough to make a living off of it. Though you do not have to fight with depreciation as much, but you do have to deal with the upfront down payments and long term mortgages.
Chris Pochari brings up a great point when he said, " the industry is still highly fragmented and the top 4 players only have 22% of the market" so it is definitely possible to make a living in this industry and once a company has a decent market share, the big dogs like sunbelt are known to buy out their market shares.

I understand that my lack of "years of experience" would be working against me. Therefore, I am looking to explore more options about obtaining this. I know you can also finance through dealers as well and if anyone has done that, I would love to hear about it. I am also by no means expecting to start out with a huge unrealistic fleet.

Chris: the roll up strategy is an interesting one but I am not looking to get into bed with anyone else, I do not hear good stories about partnerships. And thank you for the case study links. I agree that knowledge is power.

Maybe partnerships don't work out sometimes but like Delmer said without experience the banks will be hesitant. Getting a partner is one easy way to bypass the "experience" part of it.

 

[92U 3406]

I've worked for 2 rental shops in my career. They both operated completely different from each other.

One thing common to both places was that the machines were classed in the computer system as "Available" or "Unavailable". When a unit came off rent, it would be listed in the computer system as unavailable until the shop went through it, made the necessary repairs or services and sent it through the wash bay. When an available unit was to be shipped out for rent, the yard staff would fill out their check out list (typically they'd check oil levels, lights, controls, manuals, NDT certification date, hourmeter and any existing damage). They would then photograph the hourmeter, all 4 corners and operator's cab. All this information would get stored in the machine's file. Upon return, the check in portion of the paperwork would be filled in and new photographs taken. The photos are used to verify any damages. Machine washes are not normally customer charge unless it is extremely dirty and is estimated to take much longer than normal to clean.

In the shop we have checklists to follow. Items listed on it vary by machine type. Typically its based on what the manufacturer recommends for service at set intervals as well as items we see as common failures. Usually the basic inspection on most equipment takes about an hour to an hour and a half. Any repairs add time obviously.

When a machine is on rent, it is the customer's responsibility to grease the machine and ensure oil and coolant levels are correct. Normally we don't have scheduled vists to the machines. If they need service or repairs, the customer phones us and a field mechanic is dispached to the machine. If a customer has a dozen or more machines on rent we will typically stop by once every week or so to check on everything if the customer requests it.

 

[92U 3406]

I would highly recommend spending even a year at a rental company. Usually the clause you speak of is only in effect for 1-2 years. That'd give you time to come up with a plan and allows you to see what works and what could be done better.

 

[Brute_200]

Maybe partnerships don't work out sometimes but like Delmer said without experience the banks will be hesitant. Getting a partner is one easy way to bypass the "experience" part of it.

That would help with the experience issue but then I would lose equity to someone who has more money than me and can potentially flush/buy me out. I see a partnership as an easier start but a harder finish.

I would highly recommend spending even a year at a rental company. Usually the clause you speak of is only in effect for 1-2 years. That'd give you time to come up with a plan and allows you to see what works and what could be done better.

I would not be opposed to that if I could find employment that wouldn't restrict me later on and I still would have to weigh out salaries, yes it would be helpful to work for a company I could potentially model but what would be my entry role? If I can make more money being a PM, I feel like that would be more helpful since I could save up money to help pay for my standard cost of living during my startup business years of low pay, yet I would still learn valuable operation skills being a PM before starting up my own gig. I spoke with a guy down in Louisiana who started his own rental company but was brought to court from his previous employer (another equipment rental company) over a contract he signed when he was hired. He won the case and got to keep his business but it was at a hefty court cost.

These companies that you have worked for 92U, do you have any idea what size fleets they started with? And what do you guys charge for fuel when a piece of equipment is brought back lower than what it was delivered with? 150% the going rate of fuel?



I would look to keep overhead cost at a minimum. Maybe just renting out a small shop and getting a small business start up loan for operating expenses and down payments for machinery and possibly look into financing through dealerships? Regardless, none of this will happen immediately, I plan to go to work as a PM for a local company at the moment and will be applying elsewhere as well to see what's out there but I am hellbent on coming up with a plan to run my own show one day in the near future.

 

[Welder Dave]

You're not finished your schooling yet and want to jump in head first. Maybe the first thing you need to do is question why there is only one rental place in this city. 60,000 isn't that big of a city and maybe there just isn't enough rental business to support more than one rental outfit? Partnerships are a crap shoot and you are better off if you can do it on your own. Many partnerships have started off great but turn sour a few years down the road. Not unlike the high rate of divorces. I agree with 92U, you need to work for somebody else for a while to learn more about the industry. I think you will have to have employee's as it would be very difficult to do it all yourself. Most rental outfits require a deposit to cover potential damages and also have optional insurance to cover major damage or accidents.

A lot of non compete clauses aren't worth the paper they're written on. Certain clauses are to protect proprietary information and customer data but the ones trying to prevent you from working in the same industry usually don't hold any water. If it is a legitimate non compete they usually do have a time limit.

 

[Brute_200]

You're not finished your schooling yet and want to jump in head first. Maybe the first thing you need to do is question why there is only one rental place in this city. 60,000 isn't that big of a city and maybe there just isn't enough rental business to support more than one rental outfit? Partnerships are a crap shoot and you are better off if you can do it on your own. Many partnerships have started off great but turn sour a few years down the road. Not unlike the high rate of divorces. I agree with 92U, you need to work for somebody else for a while to learn more about the industry. I think you will have to have employee's as it would be very difficult to do it all yourself. Most rental outfits require a deposit to cover potential damages and also have optional insurance to cover major damage or accidents.

A lot of non compete clauses aren't worth the paper they're written on. Certain clauses are to protect proprietary information and customer data but the ones trying to prevent you from working in the same industry usually don't hold any water. If it is a legitimate non compete they usually do have a time limit.

Not trying to build Rome in a day here. I will graduate with my degree in December and plan to go back to work full time after graduation for some time until I reach a point where I feel stable enough to go out on my own. This is just an idea I have been spending a lot of my spare time researching and trying to gain knowledge on and start to build up a business plan for the future.

The suburbs and the larger cities themselves around here have already been flooded with equipment rental companies, so yes 60,000 may be significantly less than other cities, but I feel as if the larger cities near me already have too much competition and I would be easily squashed out. But nonetheless, I plan on doing more market research in my area regardless.

 

[Delmer]

Actually I was surprised to hear that this "rollup" strategy even existed. It's not anything similar to high technology, it's all about market share, if you look at WM's (waste management) history you will find that they didn't really grow organically. The business world is fascinating, and risky that's why 99% of the popl will stay an employee.

What the rollup strategy tells me is that the industry is mature, and ripe for consolidation to exploit the efficiencies of scale. Here we have an ambitious (probably delusionally optimistic) fellow who wants to break into a mature industry. If he was an optimistic young person with a NEW idea that was a longshot, I'd say go for it, what do you have to lose? (no competition). Here, I say, what do you have to gain? a business with no edge over any other similar business and a lot of competitive disadvantages (scale).

 

[DMiller]

The other yards also have the advantage of being nationwide or at least regionally large where they can buy in quantity and charge less per machine. Think on that as you try to develop a charge rate and look to theirs in reflection. If you only make a pittance on each rental it is harder to stay eating and maintain a level of profit. Been there done that with on the side garage work and trying to enter the trucking industry in the 80's.

 

[Welder Dave]

Not trying to build Rome in a day here. I will graduate with my degree in December and plan to go back to work full time after graduation for some time until I reach a point where I feel stable enough to go out on my own. This is just an idea I have been spending a lot of my spare time researching and trying to gain knowledge on and start to build up a business plan for the future.

The suburbs and the larger cities themselves around here have already been flooded with equipment rental companies, so yes 60,000 may be significantly less than other cities, but I feel as if the larger cities near me already have too much competition and I would be easily squashed out. But nonetheless, I plan on doing more market research in my area regardless.

You might have just answered your own question. If the larger cities and suburbs in the area are flooded with rentals, the rentals companies might look to your smaller city with less competition to increase their business. Typically rental outfits like to turn machines over every 4 or 5 years so need to have them paid off before then so they are getting a good return on their investment.

 

[92U 3406]

Equipment isn't cheap either. For a pair of midsize skid steers and some attachments you are probably looking in the ballpark of $150k. Even a brand new 19 foot electric scissor lift retails new for close to $20k. I'd say you'd need at least $500k to $1 million just in equipment to have a sizeable enough fleet to start with depending on what you buy and what range of markets you wish to serve.

 

[chris pochari]

What the rollup strategy tells me is that the industry is mature, and ripe for consolidation to exploit the efficiencies of scale. Here we have an ambitious (probably delusionally optimistic) fellow who wants to break into a mature industry. If he was an optimistic young person with a NEW idea that was a longshot, I'd say go for it, what do you have to lose? (no competition). Here, I say, what do you have to gain? a business with no edge over any other similar business and a lot of competitive disadvantages (scale).

Yes the industry is mature and ripe for consolidation that's why there is opportunity. You just need to find good partners and try your best, unless you have tons of family money.

 

[crane operator]

Sunbelt is a tough outfit to compete with. They just arrived in springfield, mo, about a year ago, and have been driving down rates to get market share. I don't see a independent having much luck competing with them, on larger equipment. You drive by their yard and there's 5 million in inventory. No banker is going to loan out to compete with that.

As far as the paperwork on damage, dirty, fuel etc. Sure it sounds great to stick it to the customer for any little thing. Read that again: if you stick it to the customer for every little thing, they aren't your customer any more. There's a reason they rent equipment. They send it back dirty and you try to charge them for washing off mud and they're done with you. Every rental house deals with that, and they all eat the cost of repairs. They aren't going to fix a machine you destroy without charging you, but they don't charge for a bent forklift tooth or a bent handrail on a manlift. If you're a big enough customer, they fix it and go on with life.

What Delmar has to say about the equipment game being more about financing than anything else, is spot on.

="
I've thought about starting an equipment rental business, but it's so capital intensive that I dropped the idea to focus more on the niche market of medium sized demolition, I found a high reach excavator in the UK for $51,000 hoping my grandfather will help me buy it!..

Just find good partners and try your best, unless you have tons of family money

Sorry- I just thought those two quotes a couple posts apart were amusing. Carry on!