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05

Sep

"You Must Buy it Right" Axiom Review

Review of the "Eight Axioms for Used Equipment Management Success"


On page 119 of Walter J. McDonald's book, Achieving Excellence in Dealer/Distributor Performance: How to Increase Profitability, Cash Flow, Market Share and Customer Retention, Walter writes about how dealers and distributors suppliers should think about their used equipment sales. Let's break down all eight:


1. You Must Buy it Right

Make rational business decisions based on reality, especially for appraisals and setting wholesale valuations.


This is a self-evident axiom. Everyone knows in real estate that it's all about the timing you purchase a property. That counts just as much as the upside location of the area it's in. Over time, if you have negotiated a good deal on the property and the area is generally getting better, you are almost guaranteed to profit from the sale unless the economy happens to be in a fast decline.


The "buy it right" idea in equipment is the same as real estate. The most profitable machines are those a dealer is able to purchase used for a good discount, rent reliably for a few years (few maintenance issues), then sell it at or near their acquisition cost - that's a sweet deal!


Unfortunately, many equipment rental companies get caught up in a hot economy and load up on debt when they have more rents coming through then they can cover. In the market-grabbing intensity of a hot market, it is hard for cool heads to prevail and keep debt levels in check. When a downturn hits, even a slight one, this can cause over-leveraged equipment rental companies to have too many units on their yard not making any rentals (aka money).


When a downturn hits, it is even more crucial to have purchased equipment at a good price. If a company needs to shed assets to stay afloat, it is easier to do so when there is not a big gap between acquisition costs and resale valuations.


Alternatively, a downturn is a GREAT time for companies with good cash on hand to pick up excellent deals on equipment. In a downturn, the best-run companies buy up many great assets for dimes on the dollar, and even other equipment rental companies who want out. For companies who manage their debt and cash well, a downturn is the best time to "buy it right."

 

Thank you for taking the time to read this review, and we look forward to serving you on Gearflow.com!


The Eight Axioms for Used Equipment Management Success is written by Walter J. McDonald in his book, "Achieving Excellence in Dealer/Distributor Performance"


The book is available for purchase on their website: https://mcdonaldgroupinc.com/achieving-excellence-guide


Luke Powers

Founder & President, Gearflow.com

luke@equiprent.com

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