Franklin Langham is the in-house financial services industry expert and vice president, sales, Northeast region at IronPlanet. Langham is responsible for financial service industry customers, including companies that finance and lease equipment to the construction industry. For more information, visit Iron Planet.
When the financial forecast for your industry is sunny, making decisions about buying, selling and maintaining your fleet is relatively simple. Working with financial institutions for funding when you need to grow your business tends to go smoothly, and there’s plenty of work to go around. But, when clouds are on the horizon and a slow season approaches, it’s time to assess your biggest spending areas and trim down.
For many businesses, heavy equipment is a critical area of spend. The following are six financially savvy equipment steps to take during a market downturn, whether you’re looking at a short seasonal dip or a potentially longer dry run.
1. Be realistic about market prospects
As an informed business owner or fleet manager, you have watched the construction industry cycle. Each year brings seasonal ups and downs, and as oil and gas prices fluctuate along with raw material cost and the global economy shrinks and expands, construction activity cools down and heats up accordingly. Closely watching these changes over time and aligning your asset management strategy will set you up well to take counter measures ahead of slow periods, such as disposing of surplus equipment, and to make the most of a boom season or year, like buying tactical additional pieces of equipment.
2. Stick to recommended maintenance cycles
Though it’s tempting to skip a checkup here and there to save on costs, keeping equipment on the manufacturer’s recommended maintenance schedule is a smart financial decision. It’ll reduce the chances that you’ll be surprised by an expensive required repair at an inopportune time. The peace of mind that comes with knowing all of your machines are regularly serviced is priceless in an uncertain or tight financial season. Additionally, with regular maintenance, if or when you need to dispose of the equipment, you’ll be able to get a better resale value.
3. Know your fair market and forced liquidation values
When money is tight and the market looks unpromising, keep a close watch on the value of your assets. If necessary, what could you get for disposal in fair market conditions? What about in a forced liquidation? Knowing your assets’ true worth can help you make the best possible decisions about equipment purchase and disposal. One of the most reliable ways to get this information is to set up a quarterly or biquarterly appraisal cadence with a company experienced in assessing value both formally and informally. Appraisals help paint an accurate picture for owners and financing institutions alike, as they monitor a company’s overall health.
4. Cut the fat from your equipment inventory
If you have equipment in storage without a job for it in the pipeline, it may be time to sell off those underused assets to increase cash flow for your business. You’ll always be able to pick up a replacement at auction if and when you need the machine again, and you will save on both storage and maintenance costs in the meantime. With regular appraisals, you will be able to evaluate which assets are earning their keep in your fleet and which are dragging, cut where you can and devote your time, energy and dollars to machines that turn a profit.
5. Communicate with financing institutions
Communicating with any financing companies early and often will help you avoid any unnecessary fees, maintain your good standing and ensure they have a clear understanding of your business’s needs and outlook. If asset valuation is formally requested, work with an appraisal company who has expertise in construction equipment and who can provide the valuations in the expected structure. When you can demonstrate to a financial institution that you are a traditionally healthy customer who happens to be a victim of the current market cycle, the banks may be more inclined to restructure loans and give you a boost to survive the downturn.
6. Develop a working relationship with a disposition marketplace
Selling surplus assets can get complicated, and you’ll want to work with a trustworthy marketplace that can walk you through the process, from start to finish. Look for guaranteed, detailed inspection reports, a record of solid customer service and ample experience in the world of construction equipment resale. The marketplace should also be able to help you figure out optimal timing for your equipment disposition, given your particular business needs.
To maximize the value you can get from your equipment at auction, consider working with an online marketplace that can tap into a global buyer base. You will have a better chance of hitting the right market conditions for a great price, since online auctions are held weekly. A reliable online marketplace will be able to connect buyers to customs brokers and transportation providers who can streamline the process of purchasing internationally, and you’ll save on shipping costs because items sell straight from your yard.
Good news is often just around the corner. In the meantime, staying as informed as possible about the value of your fleet related to the market and as connected as you can to your financing and disposition partners can help keep you in the best position to survive and thrive over the long haul.