Tag Archives: Buying

Buying a van – which one?

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When buying a new car, most people already have a strong opinion about what they want. Colour, brand, features etc., can be a very personal decision. However, where do you start if you need a new van for your small business, especially if you have not bought one before? This guide will help you understand what you should consider in making your decision about buying a van.

A van is a medium-sized motor vehicle, typically without side windows in the rear section of the body, for transporting goods.

WHY buy a Van?

If you need to transport goods in an enclosed vehicle that will not fit in a car, that needs to be protected from the weather and kept secure whilst still being very maneuverable and economical to run. Then a van might be the answer.

The small van is synonymous with small businesses, whether a tradesman, delivery driver, or even a mobile barista. They offer great cargo carrying capacity whilst driveable on a standard license and can still be easily parked.

WHAT factors should influence my decision when buying a Van?

When considering buying a van, you should evaluate the following:

Specifications
  • Size – When you consider your needs, vans will normally be described as short or long wheelbase, which indicates length. Think about what you need to carry and thus your required dimensions. Width is also key if, for example, you need to be able to load a standard-size pallet in the rear. The bigger the van, the harder it will be to park and maneuver.
  • Roof height – Being able to walk around upright may be a requirement but remember you might now no longer be able to drive into a loading dock or car park that has height restrictions.
  • Payload – What is the maximum weight the van will carry? Note this measure will also have to include vehicle occupants and fuel weight. A twin rear wheel axle will allow additional weight to be carried. It is important to know that a gross vehicle weight over 4.5 tons will require a special driver’s license.
  • Engine – Traditionally, petrol gives better speed whilst diesel provides more pulling power and fuel economy. Another advantage is a diesel engine will have a longer service interval and is designed to do more kilometres keeping your van on the road longer.
  • Drive train – Although more expensive, an automatic transmission may significantly reduce your driving fatigue if you are negotiating city traffic. In the country, an all-wheel-drive variant might be needed to get you where you need to go.
Passenger considerations when buying a van
  • Doors – Door configuration can also be very important depending on how you want to use the van. Say you want to reverse up to a loading dock, then barn-style doors with 180-degree hinges allow you to do this. Sliding doors on both sides allow better access to contents etc. If you have ladders on the roof, will a lifting tailgate allow you to access them?
  • Weekend warrior – If the van will also be your transport during your time off, are there any considerations you need to make, like extra seating or provision to carry a bike or surfboard?
  • Seating– Extra seating is available in some models if your van is to carry the workers and the tools. Indeed most car manufacturers offer a small minivan in the same format for moving up to 12 people (a special driver’s license is required if you have more than 12 seats)
  • Comfort – Vans typically have a very upright seating position. If driving all day, consider this carefully when test-driving vans. You might also be able to pay extra to have more creature comforts like climate control air-conditioning.
Nice to haves when buying a van
  • Parking aids – Rear parking sensors and a camera will greatly assist in reversing into those hard-to-get spaces.
  • Safety features, if available, might save someone’s life or make driving just that much simpler and could include adaptive cruise control, hill start, speed limiters, blind-spot monitoring, autonomous emergency braking, automatic headlights, lane departure, road sign assist, etc.
  • Internal fit-out – You want your van fit for purpose, and lots of options are available and could include interior lining, refrigeration, safety barriers, built-in navigation, racking, draws, tie-down hooks, onboard power, etc.
  • Accessories – A van can become more versatile with optional accessories like roof rack, side awning, roof ladder, interior lighting, towbar, rear step, cargo barrier, grab handles, etc.
  • Branding – A van is also a mobile billboard and gives you the canvas to create advertising on its side to promote your business. Some businesses might want to stay incognito if the van carries expensive items.
  • Warranty & reputation – Check for how many years of warranty you get if used in a commercial environment. Also, check online forums where others may share their experiences of driving that vehicle.
  • ANCAP Safety measures how safe your car/van will be in the event of a crash. Ratings for vans in Australia can be found here. Simply the more stars, the better.
Running costs
  • Capped servicing – Some van manufacturers will offer a fixed-price servicing plan which helps you with your budgeting.
  • Running costs – Be realistic on just how much it will cost you to keep your van on the road and use this cost in your business planning to understand costs vs revenue.
  • Repairability –  Chances are, as a commercial vehicle, your van will do many more kilometres than a car. This, unfortunately, increases your chances of having an accident. How easy is it to get replacement panels, and at what cost? Because of the nature of this being a commercial vehicle, it is likely the interior fittings will be designed to take some punishment.
  • Insurance will differ by make and the driver’s age and driving record. Vans generally will do more kilometres, so more likely to be in an accident and will attract higher premiums.

HOW do I buy a van?

What is your budget? Just like cars, there are dealers for both new and 2nd hand. You can, of course, buy privately.

Car dealers might offer drive-away deals and special financing deals to encourage you to purchase. Look out for bonuses like roadside assistance or scheduled servicing thrown in.

Check the latest rules as you might be eligible for an instant asset write-off from the ATO.
Car dealers might also offer fleet deals or a special price for ABN holders.  The GST on your vehicle may also be claimable

Note: Registration is generally more expensive for a business vehicle but is also claimable as an expense.

HINT – Buying a van

Before you rush out to buy a van, there are a few further things you need to know. 

Vans are built to a price, and that normally means cheap. Although some vans come with a 5-star safety rating, some do not, and due to maximising cargo space, might be very unsafe in a head-on collision. Please consider what your personal safety is worth. In Australia, vans were not required to have stability control (reduces the chance of rollover in a poor traction situation) until November 2017, so consider this when buying 2nd hand.

Vans are not cars. Thus, comfort, aesthetics, and multimedia will not be of the same standard. A van is designed to carry weight, and as such, the suspension will be hard and unforgiving in corners. When the van is empty, it leads to poor rear braking and front heavy handling. Drivers often sit ahead of the front tires, increasing the risk of cutting a corner early. Rear and side vision is restricted. Engine noise will be greater if the engine is below the driver’s seat.  

A great guide for buying 2nd hand vans can be found here

SUMMARY – Which Van

Which small van or which large van is the one that meets your business needs best?

If you own a delivery van, every friend and family member will want your help on the weekend.

That aside, it is a great representation of your business from both functionality and advertising.

Buying a business

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Starting a business from scratch means having no customers,no processes, no assets etc, however on the other hand buying an existing business could mean the hard work has already been done.  Alternatively, buying an existing business can also be a way of expanding a business you already own. In this guide we will look at what you must consider.

WHY should you consider buying a business?

There are many advantages of buying a business, which for some might be buying themselves a job. For example, if you bought a lawn mowing business with all the equipment you immediately start to earn income with existing clients.  Your chances for success are greater as the business already has runs on the board.  Even the process of asking for a loan will be easier as there is a known risk. Ideally, you will buy a business that is undervalued or has the potential to grow through your hard efforts.
There are also disadvantages, like the business was misrepresented by the previous owner, that could be turnover, reputations, debts, etc.

WHAT do you need to consider when buying a business?

It is critical that before buying a business you do your research carefully. The more information you have the better the decision.  Unless you have the skills we strongly suggest you retain the services of at least a business advisor, accountant, or lawyer. The following steps may be helpful

Where the business is conducted through a company
  1. Do a company search to verify the vendor
    ASIC Search
  2. Are all ASIC compliance requirements up-to-date?
  3. Does the company have any overseas operations?
Financial position
  1. Review the last four years’ financial statements for the business.  Analyse liabilities, inventory, and accounts receivable and payable.
  2. Understand who currently owns the business such as shares, options, warrants as well as outstanding debt instruments.
  3. Review an up-to-date copy of the business’ credit report.
  4. Does the business have a loyal customer base? For example, subscriptions, loyalty programs, etc.
  5. Have you considered the financial projections and major growth drivers of the business in the next four years?
Tax considerations
  1. What are the tax obligations of the business to be purchased?
  2. Have you obtained confirmation that all tax obligations – for example, income tax, GST, PAYG withholding, stamp duty, and payroll tax are up-to-date and paid?
  3. Obtain the last four years’ tax returns, including supporting schedules and work papers of the business, such as capital allowance schedules, business activity statements, fringe benefits tax returns, etc.
  4. Check if the business is currently being audited by the ATO or has been audited in the last four years and, if so, what the outcome was.
  5. Have you considered the stamp duty implications of the purchase of the business? (fees payable to the government associated with the purchase)
Assets that you are buying that the business currently owns
  1. Has a fixed asset register been obtained detailing all the assets being sold?
  2. Have you sighted the assets and condition of the assets being sold?
  3. Where assets are leased by the business, have you obtained copies of the leases?
  4. Are the assets adequately insured until the settlement of the purchase?
Employee obligations
  1. Have you obtained a list of the employees, including their salaries and other entitlements?
  2. Do any employees have close contacts with customers that, if they were to leave, the business would be at risk of losing customers?
  3. Are there any key staff who would be imperative to the smooth continued running of the business? Considerations should include special skill sets or knowledge.
  4. Are you aware of all employment conditions, including key workplace agreements, incentive bonus plans, staff rotation policies, disciplinary procedures, etc.?
  5. Have all outstanding employee entitlements, such as superannuation guarantee and annual leave, been accounted for?
  6. Are the WorkCover premiums up-to-date?
Inventory
  1. Does the current inventory include any obsolete stock?
  2. Has the inventory been valued at market value?
Business premises
  1. Do you have copies of all real estate lease agreements, deeds, mortgages, and any documents relevant to the premises?
  2. If the same business premises are to continue, has the vendor facilitated a lease transfer to you?
Miscellaneous
  1. Do you know why the vendor is selling?
  2. Has the vendor attempted to sell the business before?
  3. Is there a documented business plan?
  4. How complex is the business? Do you have the skills required to continue?
  5. Are the business operations subject to any government regulations? If so, are all relevant government licenses, permits or consents up-to-date?
  6. Have you done a competitive analysis?  Do you need a non-compete clause to stop the vendors from setting up in competition?
  7. Does the business have any pending or ongoing lawsuits or any recently finalised litigation cases?
  8. Have you searched the local council and other government agency records to ensure there are no plans or council orders that could disrupt the business or lead to a potential drop in sales?
  9. Have you identified the key customer and supplier contracts, and the likely impact a change of ownership might have on these agreements?
  10. Review the business’s current production, distribution, sales, and marketing strategies (including websites and social media) and the likely impact of a change of ownership.
  11. Have you considered potential issues that could negatively impact the viability of the business (e.g. changing technology, trends, etc.)?
  12. Are there any intellectual property matters to consider? For example, trademarks, licenses, patents, etc.
  13. Seek advise on other questions you should answer

HOW do I buy a business?

Once you have completed all your due diligence and you want to move ahead its time to make an offer.  Be prepared to negotiate.  Once you agree you will need a contract.  We strongly suggest you retain a lawyer in this process.  The written contract ensures that both you and the seller clearly understand what each agrees to, for what cost, and what method of payment.

You should also understand what training will be needed and, if the original owner continues to work in the business, a specified period to do a handover.

HINTS

As the last thought we suggest you:

  • Make sure this is a business you want to buy
  • Don’t assume you will not have to work hard yourself and you are buying a money train
  • Have a clear vision and plan for the future
  • Keep records of all conversations and all documents
  • Do your homework

SUMMARY – Get help from a business consultant

Buying a business can help you grow quickly but be sure to follow some strict due diligence to minimise any nasty surprises.  Your accountant or business advisor would be a good independent advisor for the purchase.

ACCC Franchising tips

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Franchising allows you to run a business by buying into a ready-made business with an existing brand, systems and offering. In some ways, it is a low-risk way to buy a ready-made income.

Small Business Answers has written a complete guide on buying a franchise.

A franchise does indeed come with its own risks and challenges. Many of these risks and challenges can be avoided by doing your homework before you sign on the dotted line.

According to the Australian Competition and  Consumer Commission (ACCC), they receive around 500 contacts in a typical year.  These enquiries are about people trying to understand their rights and understand if something is within the law.  To help small business, the ACCC has produced a new webpage with helpful franchising tips.

The ACCC covers the following topics:
  • Can you make an income from a franchise
  • understanding what flexibility you may have and will you really be your own boss
  • franchising does not guarantee profitability
  • Will the law protect me if something goes wrong
  • Franchising agreements are for fixed terms, and then what happens

The page also looks at several case studies, which help put everything into perspective.

The ACCC tips website “Franchising: Is it for you?” can be found here.

Leasing vs Buying Equipment

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Setting up or expanding a business can be an expensive exercise.  To provide yourself with the tools and equipment you will have to either buy items or lease items. Almost anything can be leased from office equipment to machinery and tools.  This guide will help you consider the choice between buying and leasing as well as providing further knowledge around the process of leasing.

Leasing of plant and equipment is obtaining the use of machinery, vehicles, or other equipment on a rental basis. This avoids the need to invest capital in equipment. Ownership rests in the hands of the financial institution or leasing company, while the business has the actual use of it.

If you do not have the available cash, further details on ways of acquiring finance can be found in our guide on Financing.

WHY should I lease versus buy?

To understand which is best in your situation it is best to understand the various advantages and disadvantages of each.

Leasing advantages include: making lower monthly payments rather than buying upfront, getting a fixed financing rate instead of a floating interest rate, benefiting from tax deductions on leasing costs, conserving working capital and avoiding cash-devouring down payments, and gaining immediate access to the most up-to-date business tools. The equipment also shows up on your income statement as a lease expense rather than a purchase. If you purchase it, your balance sheet becomes less liquid. The leasing company may also be responsible for repairs saving you maintenance costs.

Leasing disadvantages: You may pay a higher price over the long term versus buying. Leasing commits you to retain a piece of equipment for a certain period, which can be problematic if your business is unstable. Some brands or models may not be available to lease.

Buying advantages: Allows you complete control over your purchase including selection, modifying, and selling the asset for cost recovery. You can control repairs and service intervals. In certain cases, you can claim depreciation as a tax deduction. No agreements or contracts to agree to.

Buying disadvantages: Requires you to have cash flow and might force you into buying a cheaper model. If technology is outdated you have no easy upgrade path other than selling. Unless a warranty or insurance policy exists, repairs and maintenance will be an additional expense.

WHAT do I need to understand about leasing?

If you are just starting a business you may find it difficult to lease equipment. Lease companies will look at your lack of credit history but may consider your personal rather than business credit history during the approval process.

There are four types of equipment leases:

Finance Lease: Ownership of the equipment is with the business. It is on-balance sheet. Lease payments are tax-deductible. At the end of the lease, the equipment is returned to the Lessee or purchased by the business for an agreed price.

Operating Lease (Rental): Ownership of the equipment remains with the Lessor (it is off-balance sheet). Financing payments are tax-deductible. At the end of the lease, the lessee returns the equipment to the lessor or purchased by the business for an agreed price.

Commercial Hire Purchase: Equipment is owned by the business and it is treated as on-balance sheet finance. Only the interest portion of the payments is tax-deductible. The business can claim depreciation deductions on the equipment. At the end of the term, the equipment remains with the company. Sometimes there is a residual value payment required.

Chattel Mortgage: Equipment is owned by the business and the interest component of the payment is tax-deductible. The business can claim depreciation deductions on the equipment. This is a traditional secured loan where the equipment acts as security for the Lender. At the end of the finance term, the borrower remains as the owner of the equipment.

Watch for balloon payments, here you make small monthly payments with a large payment at the end. While this allows you to conserve your cash flow, the final balloon payment may be more than the equipment is worth.

If your lease requires you to return the equipment at the end of the lease and it’s worth less than the value established in the contract, you may be responsible for paying the difference.  Also, watch for additional charges such as wear and tear.

HOW to buy or lease equipment?

Buying equipment is fairly straight forward however when selecting the right product you should consider:
  • What you need both now and in the future?
  • Would it be more cost-effective to have someone else’s plant or machinery do the task for you?
  • Do you have the right environment or space to operate this product?
  • Is the quality or reliability of product critical and does the extra cost make sense?
  • Do you need to buy new or will 2nd hand work?
  • How easily and/or quickly can the product be repaired or serviced?
If you decide to lease, the above list also applies. You can secure an equipment lease through:
  • Banks and bank-affiliated firms. Banks may offer advantages, like lower costs and better customer service. Check whether the bank will keep and service the lease transaction after it’s set up.
  • Equipment dealers and distributors can help you arrange to finance using owned leasing subsidiaries or an independent leasing company.
  • Independent leasing companies.
  • Commercial leasing broker. Much like mortgage brokers, these people charge a fee to act as an intermediary between lessors and lessees.

HINTS

Every lease decision is unique, so it’s important to study the lease agreement carefully. Compare the costs of leasing to the current interest rate, examining the terms to see if they’re favourable. What is the lease costing you? What are your savings? Compare those numbers to the cost of purchasing the same piece of equipment, and you’ll quickly see which is the more profitable route.

SUMMARY – Leasing versus buying equipment

There are advantage and disadvantages of both buying and leasing.  Make sure you:

  1. Understand the tax consequences.
  2. Make sure the product and the financing meets your needs.
  3. Understand what the implications are at the end of a product’s useful life or the end of lease terms.

Your accountant should be able to advise you in these matters if you require additional assistance.