Financial Modeling Techniques for Equipment Rental Business

 I've done two main equipment rental model templates and a few custom builds for clients. I will go through all the various styles I have seen for creating financial forecasts / cash flow forecasts for this type of business below as well as some techniques I have not tried before.

These two templates:

Utilized Days Modeling Style

The two templates above basically focus on purchasing units that you plan to rent out, defining an average price per day for the items, and then defining the average utilization of available inventory over time. The 100 unit version has simpler inputs and a simpler opex schedule while the arbitrarily large version has more detailed opex assumptions and a bit more granularity to the utilization / availability of rentable units over time.

In this revenue forecasting methodology where the focus is essentially on the amount of rentable days that exist and the pricing therein, you don't look at customer contracts but rather what you expect demand to be.

Contract Cohort Modeling Style

This would be more for long-term rental / leasing contracts (24/36/60 or more months) rather than a company that rents capital assets out for days or weeks at a time. Also, this style is good if it takes significant costs to actually deploy the equipment you are going to rent out.

With this type of forecasting model the focus is on individual contracts being closed over time, renewals, and a defined value per month for those contracts. Instead of focusing on utilization / rentable days, this model focuses on the capex requirement to build out and deploy whatever it is you are renting in each contract and then define the value of contracts over the full term and the value at each renewal (may go down as the equipment ages).

The methodology for this forecasting style may or may not have a renewal and will have accounts receivable over time, or unearned revenue depending on the contract terms. Also, this doesn't assume any utilization factors, simply the expected contracts closed (each contract is tracked individually), the cost of deployment / equipment for each contract, and the monthly value of that contract over its term.

A similar template to this would be my enterprise SaaS model. It is pretty close to the above, except you would need to define capital asset purchases for month 1 of the life of each contract cohort and have that flow through to capex / cash flow / depreciation. It does a great job at doing varying contract lengths, the value received over that time, the retention at renewal if applicable, and the ability to collect the full value of the contract up front or over time. Also, that model may need to be extended to a 10-year version if the rental periods are longer.

In both models, scale is happening as the business produces and deploys rentable capital assets. But, each one does it a little different and is better/worse depending on the exact use case.

There is also the product-as-a-service model which is somewhat similar to the cohort modeling style. In this model, I have the user enter arbitrary quantities of product quantities that are on-boarded, their cost, their useful life, and their maximum capacity that can be utilized. Then, for each cohort (150+) you can define the start month and a separate schedule for ongoing subscribers that pay a fee to access the available capacity of the products. I did some cool sanity checks in this one where the user can see the % of the total capacity that is utilized over time based on how many products are on-boarded vs. how many subscribers there are and the average usage per subscribe is defined as well.