Build your recovery plan on a strong financial foundation

As the world slowly transitions into pandemic recovery mode, organizations like yours are assessing the current and lasting effects on customer activity, future business opportunities, and the corresponding bottom line impact.

If your business has slowed significantly, your biggest challenge may be a shortage of cash to pay your bills. On the other hand, if your business is struggling to keep up with a heightened pace, you may be searching for capital to acquire resources that can help meet increased demand. And if you’re somewhere in between, you’re likely reassessing your strategic plans to ensure your business is prepared for what’s next and the changes it may necessitate.

Restrictions are slowly being lifted, and more businesses are opening each day. As the world begins to establish what this next phase is going to look like, do you know what your financial recovery plans look like? Do you want to recreate the success you were experiencing prior to COVID-19, or do you have new aspirations? But before you try answering these questions about your future, let’s first talk about where your company stands today.

Your rebuild plan needs a strong foundation

Your financial recovery plan depends heavily on how much your organization was impacted by the pandemic. While it’s tempting to jump straight to planning for a better tomorrow, you’re skipping the critical step of assessing where you are right now. Laying a solid foundation for your recovery strategy involves:

Let’s take a closer look at these building blocks.

Unlocking capital from your existing assets

Even if your organization had a strong credit rating prior to the COVID pandemic, you may have trouble acquiring new credit or extending existing credit. This is the case for thousands of businesses as lenders tighten the reins to preserve their own liquidity.

Until the economy stabilizes, carefully review your access to capital and ensure you have diversified sources of that capital. Your fleet may provide an opportunity to turn the equity of your vehicles into cash, which can help keep existing or add new vehicles in service for your company. In addition, this equity can possibly pay for fuel, maintenance, and other fleet related costs. If your needs extend beyond your fleet, accessing this equity will allow you to reinvest this capital into other parts of your business.

To unlock this equity, start with assessing the values of your owned vehicles, trailers and equipment. Then repeat that same assessment for your leased and funded assets.

OWNED ASSETS

  • Sell any vehicles and equipment that are aged, costly, or underutilized.
  • Consider a sale/leaseback. The leasing company sends you a check for the current market value of  your assets, then leases those assets back to you for their remaining service life.

LEASED ASSETS

  • Evaluate if the lease terms are appropriate with shifting business conditions and possible changes to come.
  • Assess your funded and open-end lease units to measure the difference in asset market values and current book value. If this difference is positive, evaluate if you can enter into a transaction to take advantage of this equity in those assets.
  • For full service and closed-end leases, consider the alternatives of either entering into a new, longer lease term or exploring a new lower payment. Work with your current provider or consider changing to an open-end model.

Assessing your funding strategy

This is a good time to assess your overall funding strategy, including the funding related to your fleet and equipment assets. Should you fund all your vehicles, or just a few? Should the leases be open or closed? Fixed or float? Short or long term?

The economy is undergoing a major change, and we have no way of assessing if the worst is over. A smart approach is to be prepared going forward with plans for both positive and negative scenarios for your company. This is an opportunity for you to explore options for making more efficient use of your capital.

Open end leasing is a flexible funding option that can be structured to meet your company’s needs. It can help you diversify your funding partners and ensure you are being efficient in the use of capital that may be needed for other business needs, especially if other areas have limited access to capital.

Right now, leasing rates are low, which makes this an ideal time to lock in favorable rates for longer-term vehicles and equipment. Some of the industries that can reap great benefits from vehicle leasing right now are state and local governments, utilities, and last-mile delivery companies, among many others.

Moving to the next level

Once you’ve completed these steps, you’re on solid footing to begin identifying your near- and long-term measures of financial success, and anticipating any challenges that can pose roadblocks. To make good and long-lasting decisions, we recommend a team approach and include members from your accounting, treasury, finance, operations, and fleet teams. You should also look for guidance from the senior leaders steering your organization’s long-term goals.

ARI is ready to help. We have fleet management and leasing experts ready and prepared to advise you on the current market trends. We have helped many companies during this pandemic and are happy to share more information on how companies are dealing with the same challenges as you.

Learn how your vehicle equity can work better for you by downloading our short Sale and Leaseback eBook. Interested in exploring this option further? One of our fleet specialists can help. And as always, please check our COVID Resource Center for the latest industry updates.