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May 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 22,634 tax returns that were filed in the equipment rental industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their equipment rental business.
We hope that this data will be helpful for you as a “reality check” for your financial projections and equipment rental business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many equipment rental businesses in the US are sole proprietorships
There are roughly 22,000 equipment rental businesses in the US organized as sole proprietorships. We specifically analyzed 22,634 equipment rental companies based on the 2019 IRS tax return data.
Average annual revenue for an equipment rental business
The average annual revenue for all sole proprietorship equipment rental businesses in the U.S. was just $168,007.
This may differ depending on the size of the business, types of equipment available for rent, and the location. The annual revenue will be much higher for commercial and industrial machinery compared to residential equipment.
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “equipment rental” industry. So this could include a part time side hustle that has a couple pieces of equipment available for rent to a large full time business.
This underscores the importance of actually creating your own equipment rental projections based on your type of equipment, scale and location.
Average annual expenses for an equipment rental business
The average annual expenses for all sole proprietorship equipment rental businesses in the U.S. was $182,243.
So this should immediately stand out to you because the average annual expenses are greater than the average annual revenue. So this means the average equipment rental business actually has a net loss. As we will see later, the main reason for this is because of the large depreciation expense which is a non-cash expense.
Average net profit margin for a equipment rental business
The average net profit margin for an equipment rental business was -8%.
How much can I make by owning an equipment rental business?
In order to calculate the earnings potential of a equipment rental business you can take the following assumptions:
- # of pieces of equipment or machinery
- Utilization rate %
- Average length of rental
- Rental price per hour or day
These assumptions will allow you to come up with a revenue forecast for your equipment rental business.
Top 10 expenses for a equipment rental business
Based on the tax returns of roughly 22,634 sole proprietors operating in the equipment rental industry, the following were the 10 largest business expenses as a percentage of revenue.
Average material cost of goods sold for a equipment rental business
The average equipment rental business spent 39% of annual revenue on material cost of goods sold.
The material cost of goods sold for an equipment rental business likely consists of the purchase of machinery or equipment to be rented out.
Average depreciation for a equipment rental business
The average sole proprietor equipment rental business spent roughly 31% of annual revenue on depreciation.
This seemed a bit odd at first, but given the large assets that are being purchased plus the ability to utilize accelerated depreciation it isn’t as surprising.
Average other business expenses for an equipment rental business
The average sole proprietor equipment rental business spent roughly 7% of annual revenue on other business expenses.
This is a bit of a catch all for different expenses related to running the business.
Average salaries and wages for an equipment rental business
The average equipment rental business spent roughly 6% of annual revenue on salaries and wages.
This would be attributed to the administrative work to maintain the equipment as well as workers who are able to repair and work on the machinery to keep it running smoothly.
Important Details about the Data
I want to point out a few key items about the data:
- You can download this data for free from the IRS website.
- The data includes 22,634 equipment rental sole proprietorships in the U.S. in 2019.
- This data will include businesses that operate full time, and businesses that only operate on a part time basis.
- Because of this, you should take the raw numbers for revenue, expenses and profit with a grain of salt, but the percentages can still be quite valuable when trying to forecast expenses for your business.
- This data includes businesses from all across the country, keep in mind that revenue and expenses can vary greatly based on your specific geographic location.
- We used 2019 data because we felt it was most likely to be representative of a “normal” environment for the industry. COVID-19 caused disruption to almost every business in 2020 and 2021, so we wanted to utilize “normalized” data.
If you have any questions about the data or how to utilize the data in your financial forecasting process please don’t hesitate to reach out to us!
