Scaling a rapidly growing business is one of the most difficult things any team can undertake. It requires diligent planning, significant capital, experience, foresight, and frankly a bit of luck. If the company relies on a fleet of vehicles as part of its core business, fleet planning needs to be an integral part of the greater strategy.
Acquiring commercial fleet vehicles comes with its own set of logistical hurdles. However, if a company is attempting to scale rapidly, the fleet manager must also consider how procuring these vehicles will impact the company’s financial situation.
Simply purchasing all the necessary vehicles may not put the company in the best position as it expands. Just as you may need different types of vehicles to accomplish different tasks within your fleet, you should also be sourcing and paying for those vehicles in a few different ways. Here are some things to keep in mind.
How malleable is the organization overall? If cashflow is robust enough to cover all expansion activities and tying up resources long-term is not a concern, then purchasing vehicles is the most cost-effective route. However, if cashflow is tight or market conditions are uncertain, then procuring some of the vehicles through lease or rent has advantages - it allows organizations to make mistakes without catastrophic financial repercussions.
The time between planning and delivery of purchased fleet vehicles can be as long as 8-12 months, making it very difficult to create accurate projections. The risk is if you overestimate demand when purchasing additional vehicles, a big chunk of capital will be tied up in depreciating assets that aren’t contributing. If you rent the vehicles, you will pay more up front but have the freedom to return them when they are no longer needed.
A crucial part of scaling a business is catching the right timing. You have to meet a market's demand as it rises, not when it is convenient or cost effective. If you fail to deliver on time and customers find viable alternatives, you may miss your window forever. Since purchasing vehicles is such a commitment, erring on the conservative side makes sense. However, drastically underestimating the number of vehicles you need can be damaging as well.
Purchasing commercial vehicles is already a very ridged process with manufacturers only awarding supply to dealers once per year. Now add the current supply chain issues we are facing and it is very unlikely you will be able to purchase more vehicles in a timely manner. The right rental company can help you supplement your fleet by 10-20%, so you don’t miss out on current demand, while you work out a more long-term solution. This can you even include purchasing the vehicles you are renting at the end of your term.
High growth businesses need to reserve their capital for growth activities. Even if a company has a healthy cash reserve from investors, leverage is usually a big part of the growth equation. Purchasing vehicles requires capital and financing them adds debt to the balance sheet, which reduces the amount a company can borrow for other needs.
If borrowing capacity is limited relative to the company’s total capital needs, then it makes sense to save that capacity for areas that don’t have alternatives – you can rent fleet vehicles, but there are not many options for payroll or inventory. Things that are directly involved in generating revenue should be the priority.
The Key is Balance
Effective fleet planning is not about choosing one method of vehicle procurement or another, but rather striking the right balance. Ideally, Fleet planning in a high growth business will consist of a combination of purchasing, leasing, and some percentage of renting, depending on the company’s alignment with the criteria mentioned above. Vehicles can safely be purchased or leased up to a threshold that is supported by historical demand and if they are available.
It is best to supplement fleet needs with rentals when flexibility and speed are a priority in new or expanding markets, or when vehicles are simply not available through traditional avenues. Kingbee is a work-ready van rental solution. We upfit, wrap, and deliver work ready vans to any jobsite and we have hundreds available right now.