The first step in developing a long-term equipment financing strategy is to identify all of the fixed and variable costs associated with operating your current fleet. In other words, what is your current total cost of operation?

A spend analysis is an in-depth, detailed deep dive into all spending allowing a business to gain visibility into total expenses. In effect, identifying exactly what every nickel has purchased.

Until a business identifies what it is spending money on, there is no way for it to reduce irrelevant spend and free up cash that can be used to acquire new assets.

Understanding where the money is going can help reduce expenses. And to achieve that understanding, you need visibility into just how much you’re spending with each of your vendors and what spend is taking place outside of prescribed channels. This information then can be used to consolidate the vendor base, which often gives the business leverage to negotiate better terms and prices with the remaining vendors as purchase volumes increase. The analysis helps the business gain control over its total spend, as well as spend in particular categories of goods

It might help to think of it this way: when you get your credit card statement, if you only look at the total dollar amount you owe, you will never be able to make decisions about where to curtail spending to save money.

The same attention to detail needs to be applied to the acquisition of assets to help a fleet determine if it is getting the most value for its money. A total cost of operation analysis will help a fleet determine proper asset lifecycle, which OEM’s vehicle is the best for a given application, whether leasing or buying is the most cost effective way to finance the asset, and more.

One key to an effective spend analysis or total cost of operation review is having all the facts and not making decisions based on assumptions. For example, if a fleet is doing a lease vs. buy analysis, and makes an assumption on the buy side that it can sell the truck for $10,000 at the end of its useful life, but the reality is the asset will only be worth $5,000, they’ve made a bad assumption. All too often, accounting and finance do not follow up after the fact and operate under the assumption that the higher residual value was correct. A spend analysis would uncover the truth and allow the fleet to make better decisions in the future.

The crystal clear visibility your business will get from knowing exactly what it has purchased will enable you to not only save money but make better purchasing decisions.