In the general business world, GAAP (Generally Accepted Accounting Principles) determine how companies’ financial statements are presented. While this is a standard format across many industries, it’s not very useful in analyzing the particulars of the vehicle rental business, says Jim Tennant of the Tennant Group.
During a pre-conference Roundtable at this year’s Car Rental Show, Tennant presented an alternative financial analysis, a “standard chart of accounts” that groups expenses in a logical manner for auto rental operations. This method was developed by Fred Mudgett of the Mudgett Group, from which the Tennant Group evolved.
“This way to group your expenses makes it easier for you to interpret the metrics and work on improving specific areas of your business,” says Tennant. “It can also help to make your financials more transparent to your lender.”
The method is used in all Tennant Group Roundtables and has been adopted by Dollar Thrifty licensees. Tennant says bankers and lenders have found this system to be the most useful way they’ve seen to interpret car rental financials.
Divide and Conquer
The system divides revenues and expenses into these groups:
Revenue: time and mileage (minus discounts), collision damage waiver, personal accident insurance, personal effects coverage, supplemental liability, prepaid fuel sales, baby seat, additional driver, underage driver and other incremental sales revenue
Unit Expense (the cost of having the vehicle in the fleet): rental vehicle depreciation, rental vehicle interest, rental vehicle lease expense, rental vehicle tags, taxes and inspection, gain or loss on rental vehicle sales, vehicle sales expense (minus fleet rebates)
Direct Operating (the cost of running the vehicle): parts, tires, outside mechanical repairs, towing (minus vehicle warranty), damage repairs, salvage and stolen write-offs (minus subrogation and customer collection), vehicle insurance expense
Indirect Operating (other variable expenses): gas expense (minus gas collections, except prepaid) oil and antifreeze, car wash supplies, shuttling expense, shop equipment expenses, bus depreciation, repairs and maintenance expenses, busing, depreciation or lease on service vehicles, repairs and maintenance on service vehicles, non-rental vehicle tags and license, etc.
Advertising and Sales Expense: advertising fees, national advertising and sales promotion, local Yellow Pages depreciation, signs, reservation expense, system fees, amortization franchise purchase, travel agent commissions and credit card commissions