Have you ever thought about the real cost of a tent purchase? When a business owner considers investing in new equipment, the decision often revolves around the upfront price tag. However, the real cost of purchasing equipment extends beyond its initial purchase price. In this edition of “Covered Conversations,” I wanted to open a discussion about the aspects to consider when purchasing a tent. Having a degree in business administration and working at a company which both rents and manufactures tents, I may have a few insights to share.
It would be challenging to list here all the factors to consider when purchasing a tent, from the supplier’s level of service to the product’s longevity. Let’s start the discussion by illustrating how efficiency gains can offset the effects of acquiring a more expensive tent, as well as how possible additional revenues should be considered. Let’s quantify these factors with simple numbers, but first, we need to start with the real expense—depreciation.
Let’s say you have decided to purchase a new tent. Tent A is $10,000 and Tent B is 20% more expensive at $12,000. Start with the basics. The purchase of a tent is an investment, and the purchase price, or value, will go into the asset column of your balance sheet, not as an expense reducing your profits in your financial statement. For accounting purposes, depreciation allows a business to spread the cost of equipment over its useful life, rather than recognizing the entire expense in the year of purchase. This approach aligns with the matching principle in accounting, which seeks to match expenses with the revenues they help generate.
Using the declining balance depreciation method, we’ll expense 20% of the tent’s book value every year. Tent A will depreciate $2,000 the first year, $1,600 the next, etc… Tent B will depreciate $2,400 the first year, $1,920 the second, etc.… I’ll spare you the calculations. After a period of five years, the difference has accumulated to a total of $1,345. Even though Tent B is $2,000 more expensive, it really only costs an extra $1,345 over a span of five years.
Efficiency gains can take many forms, whether it’s because fewer mistakes are made during loading or on-site during installation, or maybe your crew just loves installing Tent B as it is more versatile or lighter. Assuming that Tent B has a better design than Tent A, you can save 10% on operating costs with every installation. For example, suppose the operational costs of Tent A are $.60 a square foot and Tent B is 10% less. For a 1,000 sq. ft. tent, installed five times during the year, $300 could be saved annually, or $1,500 over the course of five years. The extra expense is recouped and more. And that’s with only five yearly installations. More money is saved with every additional installation.
What if you consider Tent B to be a superior product to Tent A? Maybe it’s a product that is less common in your local market. If so, you could probably then rent Tent B at a higher price than Tent A. If you can generate 10% more revenue with every installation, for example Tent A renting at $1 per sq. ft. and Tent B at $1.10, this would translate into $500 annually (when rented five times), or $2,500 over the same five-year period. If you combine these two factors, lower operating costs and higher revenue, then the higher spending is more than compensated, and you are really ahead of the game.
In conclusion, to accurately assess the impact of a tent purchase on your company’s finances and operations, don’t just consider the sticker price. Remember that your yearly expense is the depreciation. Efficiency gains represent tangible benefits that can improve competitiveness and productivity. Generating additional revenue is often forgotten but can also play a role both financially and contribute to differentiation in your local market. Which other factors are you considering? Let’s continue the discussion online on the Tent Rental Division’s Facebook page.
Julie Couture is the manager of sales and marketing for Fiesta Tents Ltd. She also serves on the Advanced Textiles Association’s Tent Rental Division board of directors.
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