Fire Department Financing - How to Measure Your Manufacturer's Financial Strength

How would you determine if the fire apparatusextreme risk. But performance bond analysis does
manufacturer on the other side of the contract isnot provide a complete risk analysis. Bonding
financially solid enough to build and deliver yourcompanies do not perform their audits
truck?continuously so the manufacturer may have
The fire apparatus manufacturing industry is in aworsened from the last bonding audit. A method
very tough period right now. When you enter intoto dig deeper is..
a significant and expensive contract with a3. Ask for financial information and understand it.
manufacturer, how can you be sure they will beThe manufacturer should be able to provide you
there to deliver your truck? Or honor thewith financial information that you can use for the
warranty commitment you're paying for as partdeepest analysis. The manufacturer should provide
of the contract? Or, what if the manufacturerthe last 3 years and recent financial information
offers you a complicated financial option such asthat is less than 90 days old. Then, either get help
prepayment or a turn-in lease?or understand what the financial information is
Being on the wrong end of an unfulfilled contracttelling you. A financially viable manufacturer should:
can be financially devastating and personally- Be profitable. The manufacturer should report a
stressful. As stewards of public funds, you are"net profit" on its income statement for each
entrusted with the responsibility of making wiseyear. Profit is the money that enables the
choices. That used to mean simply buying themanufacturer to stay in business and honor its
most responsive apparatus. But, in today'scontracts and after-sale commitments
environment, it now includes a financial(warranties) to its customers. Profitable
assessment to ensure that the apparatus youcompanies rarely go bankrupt.
buy today is delivered, covered by warranty, and- Be relatively debt-free. The manufacturer should
has replacement and repair parts available duringprovide a balance sheet which is the things that it
its useful life.owns ("assets") and what it owes ("liabilities"). The
This article will fire departments analyze anddifference is how much of the company's assets
understand what financial risks they are assumingare owned "free and clear" ("equity"). The more
in selecting a manufacturer. Here are 4 steps toequity a manufacturer has, the more it owns its
understand your fire apparatus manufacturer'sassets and the less likely it will fail. Also, another
financial condition:bad sign is when total liabilities (" the amount that
1. Listen and read. There is a lot of informationthe company owes") is increasing while the sales
available about the state of fire apparatusand profits are declining. That means it trend is to
manufacturers in various magazines and websitesborrow more to produce each truck.
devoted to the topic. What is the general- Not have red flags. If the manufacturer's auditor
consensus? Are orders down? Are their rumorsstates things like "we can not render an opinion"
about the manufacturer's worsening financialor "ability to continue as a going concern", these
condition? Or stories about failed contracts? Whileare very bad red flags that the manufacturer has
this is not a definite source of accuratedeep financial issues.
information, this information should tell you to digPay attention to desperation. If your
deeper if there are reports of financial issues. Butmanufacturer keeps attempting to get you to
the grapevine is a great source to understand theprepay your apparatus, this can be read as a bad
potential of a problem. It is not recommendedsign. They may be unable to obtain the financing
that you take action solely on the negativethey need and are trying to have you finance the
articles or message board postings, but, rather, toconstruction of your apparatus. A honest offer of
dig deeper to understand the risk.a prepayment discount is not troubling on its own,
2. Measure apples to apples. The easiest methodbut when a prepayment is required or
to measure the financial risk of each firecontinuously offered at a higher discount, this
apparatus manufacturer is to request theirusually means that the manufacturer is desperate
performance bond costs. A performance bond isfor funding. This desperation usually is the result
an insurance policy. And, just like other insuranceof a long period where the manufacturer has not
policies, the costs are established based on thebeen profitable and has been increasing its debt.
risk of the insured. In this case, the fire apparatusAlso, if the performance bond costs are at the
manufacturer. The bonding company measureshigher end of the $2 - $10 range, or the
the risk that a manufacturer is able to "perform"manufacturer can't provide bonding, it is
on the contract - in other words, to deliver you arecommended that you seriously consider the
truck. A performance bond cost is like a golfviability of the manufacturer.
score - the lower the better. The bond costs areMost fire departments lack the financial knowledge
stated as a dollar amount "per thousand".to perform an in-depth analysis of their
Typically, performance bond costs among the topmanufacturer. By using these steps as a starting
"name-brand" manufacturers run from$2 to $10point to measure the financial viability, you can
per thousand dollars. So, if the bond costs are onavoid the headaches and stress of having a failed
the higher end of this range, they have beentruck purchase. You will not be put in the position
assessed to be more risky than those with thethat numerous unsuspecting fire departments
lower bond costs. Finally, if the manufacturer canhave found themselves by losing money when
not provide a performance bond, that is a sign ofbuying a new apparatus.