CONSTRUCTION Accounting ARTICLE - Key aspects of fleet managementTarget Audience: Construction Industry Professionals, Business Owners, Project Managers, Contractors, Construction Accountants, Construction Success Stories Interest Poor equipment purchasing decisions, idle equipment, broken-down vehicles constantly in need of repair, stolen assets. By neglecting proper fleet management, you may face these ugly consequences — which are all the more dangerous during a time when many construction companies are facing tight budgets. There’s no doubt that fleet management requires an investment of time and finances. But the long-term savings, decreased equipment downtime and better efficiency gleaned from the effort can be significant. Let’s look at some of the key aspects of this mission-critical activity. Fleet acquisitionFleet management begins with acquisition. When acquiring equipment, the primary question is often: rent or own? Let’s say you want to buy a skid steer that costs $17,000, but you calculate that tax, licensing fees, maintenance, storage and other residual costs will add $10,000 annually to the price. If you expect to use the equipment 150 days per year over a span of five years, buying the equipment will cost a little more than $89 per day. If you can rent or lease the same equipment at a lower cost, buying isn’t your best option. Buying, however, may be the right choice if you intend to use a piece of equipment indefinitely and feel that you’ll be able to maintain it adequately. There may also be tax benefits to buying, such as the Section 179 expensing deduction. Maintenance issuesWhether you rent or own, another crucial aspect of fleet management is regular maintenance. Ignoring maintenance can not only reduce the life, efficiency and power of your equipment, but also create costly delays if the piece in question breaks down in the middle of a project. If you rent your equipment, vendors will typically perform maintenance. But you may want to ask what services, if any, you should perform over the course of the rental — especially in long-term situations. For example, you’re well aware that preventive maintenance — such as checking and maintaining fluid levels, filters and tire pressure — is important. Fluids and filters can be particularly key: Dirt and other foreign particles and fluids can quickly damage engines, fuel lines, fuel economy and overall performance. For either rented or owned assets, ask your operators to perform such checks as well as to do “walk-arounds” of equipment and look for cracks, electrical disconnections and other visible elements that may be out of order. Also make sure your operators are properly trained on all equipment they’re likely to use. And make frequent site checks to make sure they’re not misusing equipment, as doing so can shorten the lifespan of an asset or cause it to fail. Establish strict procedures for who is and isn’t allowed to operate each piece deployed to a job site. Of course, fleet management won’t do you much good if you don’t have a fleet to manage: Equipment theft costs the construction industry nearly $1 billion a year, according to the National Equipment Register. Fortunately, several fairly inexpensive solutions can help prevent equipment theft, including:
Higher-tech options such as motion detectors, cameras and immobilization devices are also effective but more costly. Program leadershipDepending on its size, of course, a fleet may require a full-time manager. If you’re having trouble keeping track of your fleet, it may be time to hire a dedicated fleet manager or outsource the duties to a fleet management company. Experienced fleet managers constantly monitor factors such as mileage, age and warranty life to ensure a construction company gets the most out of its equipment. For example, to ensure the highest resale value, a fleet manager may decide to time the sale and replacement of an older piece of equipment to coincide with a certain mileage, age or maintenance history. Fleet managers are also dedicated to saving money by securing the highest possible rebates, warranty benefits and more. Hiring a fleet management company may also give you the benefit of the latest fleet management software systems. These can more accurately manage purchasing, sales and rental cycles, and maintenance schedules, among other things. Not an afterthoughtWhether you decide to handle it internally or through outsourcing, don’t treat fleet management as an afterthought. Rather, treat it as a sophisticated function of your construction company’s operations. Allotting time and resources to fleet management can save you money at a time when you need every dollar to maintain an advantage over competitors. Sidebar: EPA regs may have contractors tiering upIf your construction company does step up its fleet management efforts (see main article), one of your first orders of business should be to look into the Environmental Protection Agency’s (EPA’s) engine emissions regulations. Under the 1990 Clean Air Act, the EPA proposed a tiered emission-reduction plan for off-highway engines of all sizes. And the most recent tier to take effect is Interim Tier 4. (Final Tier 4 will hit in 2012.) To ensure your equipment is in compliance, speak with your equipment vendors and any maintenance services you use. The Tier 4 requirements may put a strain on your cash flow if you have to upgrade your engines. In some cases, retrofitting may not be an option because of the size difference of some Tier 4 engines. Fortunately, grant money may be available: Starting in 2009 and continuing through 2010, the EPA is providing more than $400 million in grants to equipment owners to facilitate engine upgrades via the American Recovery and Reinvestment Act. Local chapters of the Associated General Contractors of America (http://www.agc.org) are helping members submit grant proposals. Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770. related linksConstruction Newsletters & Articles |
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