Tag Archive | "finance"

KUMHO TIRE SALE BLOCKED BY WORKERS

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KUMHO TIRE SALE BLOCKED BY WORKERS


Kumho Tires plant in Georgia

A deal between the creditors of South Korean tyre brand Kumho Tire and Doublestar, a Chinese brand could be in jeopardy as workers in Korea threaten a general strike.

Problems at Kumho go back to 2010 when the company made a number of acquisitions, including the heavy engineering business of Daewoo. However, the losses quickly started to mount and a sale of the company was mooted, with various tyre and parts brands rumoured to be interested. Doublestar was confirmed as the buyer in May.

In a press conference, the joint committee against the sale of Kumho Tire to an overseas company told the Yonhap news agency they will stop all production lines at the tyre maker’s local plants and stage a general strike.

“The ongoing process to sell Kumho Tire to Qingdao Doublestar Co. will result in the transfer of some production volume to China from South Korea and lead to massive redundancies of local workers” Kang Jeong-ho who represents the committee told the agency.

Kumho employs 2,900 people at its tyre plants in the Korean peninsula.

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A NEW DEBT COLLECTION PROCESS

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A NEW DEBT COLLECTION PROCESS


Changing rules mean more hassle in getting your hands on money owed

A customer will not pay their bill. Despite your requests followed by demands, you find yourself in a position where you’re getting nowhere and the debt remains outstanding. Your thoughts turn to the law, but what steps do you need to take before you can “see them in court?” Well, as it turns out, more than you may have thought.

Business creditors dealing with a debt claim involving an individual, as opposed to a business, currently have to follow a simple set of rules. However, from 1 October 2017, the new Debt Claims Protocol will apply and businesses will need to ensure that they have complied with it when trying to collect debts owed. The Protocol will be used alongside any other regulatory regime to which the creditor may also be subject.

Sarah Carlton, an associate at Fox Williams LLP, says it’s important to note that the new rules only applies to businesses (including sole traders) claiming payment of a debt from an individual which also includes someone in business as a ‘sole trader’ – “the Debt Claims Protocol will not apply to debts from a business owed to another business (except where a sole trader is involved), and nor will it apply to claims issued by HMRC.”

REGIMES
The current position for debt claims is that a business creditor, or its legal adviser, will issue a Letter Before Claim to the debtor, in order to give them a chance for the matter to be settled before court proceedings. The new rules seek to formalise the process even before a Letter Before Claim is issued. Carlton says that in practice, “this will likely mean more work will need to be undertaken before even a simple debt claim is issued, the intention being that the parties try to settle the matter without the need for court proceedings while protecting debtors facing prospective legal proceedings from creditors.” Where a firm, or its legal adviser, intends to send a Letter Before Claim over an unpaid debt, the Debt Claims Protocol aims to encourage early communication between the creditor and debtor without having to involve court proceedings.

In terms of process, the debtor will have 30 days to respond to the Letter Before Claim once it’s been sent. If the debtor fails to pay the claimed debt, another letter must be issued from the creditor giving a further 14 days for them to respond, and in theory the person with the debt should use a new special form.

Carlton sums up the thrust of the process: “Creditors should seek to take ‘pro-active’ steps to engage with debtors whatever their response to a Letter Before Claim, even if the Reply Form has only been partially completed”. She adds: “The creditor should make attempts to contact the debtor and obtain any further information that is required to appreciate the position of the debtor.”

Of course, the parties may not be able to reach an agreement or resolve the debt repayment, in which case both should take steps to resolve the dispute without starting court proceedings. Here Carlton says that they should consider other forms of Alternative Dispute Resolution (ADR), for example ‘a without prejudice meeting’ or mediation. “Again,” she explains, “the obligation remains on creditors to consider the cost against the benefits when deciding whether to proceed with ADR – it may be the case that the amount of debt claimed does not justify such a process.”

Unfortunately, if the parties do reach an agreement and the debtor later defaults, the whole process must be restarted and a new Letter Before Claim will need to be sent to the debtor.

Carlton says that only time will tell whether individuals will use the new rules to frustrate collection actions against creditors, and whether the front-loading of costs onto the creditor pre-hearing may prevent creditors from pursuing all of their debt actions – “creditors who regularly have claim money from individual debtors will have to consider whether the preparation work now required makes the claim worth pursuing” she concludes.

The new Debt Claims Protocol process

The Debt Claims Protocol requires that a standardised Letter Before Claim be sent to a debtor and that it contains particular information:

  • The amount of the debt, any interest and/or other charges claimed by the creditor
  • The date of the agreement following which the money is owed and the parties to it (whether made by written or oral agreement)
  • Where the debt has been transferred to a different creditor (i.e. ‘assigned’) details of the original debt and creditor and details of the assignment
  • If the debtor has offered to pay, an explanation of why the offer or payments from the debtor are not acceptable to the creditor and why a court claim is still being considered
  • Details of how the debt can be paid and details of how to proceed if the debtor wishes to discuss payment options with the creditor
  • An up to date Statement of Account for the debt (including charges and interest claimed), an Information Sheet, a Reply Form and a Financial Statement Form (as annexed to the Debt Claims Protocol)
  • The address to which the Reply Form should be sent

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THE GOING RATE IN THE AREA


Working out how much you should charge should involve more than simply plucking a figure out of the air, says Andy Savva

Andy Savva

Savva has run various large independent garages and has been a troubleshooter for underperforming franchise workshops. comment@haymarket.com

One of the most and frequent responses I hear from independent garage owners when asked: ‘What’s the basis of your labour rate?’ Answer: ‘it’s the going rate in the area’.

There is a law in this repeated answer. How can you set your labour rates within the same bracket as your competitors? If you do that tells me that you have the same fixed costs, rent, rates, insurance, electricity, gas, salaries etc. as everyone else, surely this cannot be possible?

Of course it isn’t the case. While independent garage owners will have similar running costs they won’t be exactly the same, yet labour rates are set on the basis that it’s the going rate within a given postcode. Let me tell you here and now this is certainly not the way to set your labour rates.

Your first challenge is to calculate your complete running costs for your business as mentioned earlier, this should be straight from your annual accounts. Let’s assume this figure is £395,000 this includes staff salaries for five techs and three non-productives, all your rent rates, insurance and general running costs etc.

So before anything happens you need to generate £8230 per week. Now on average the labour/parts split for an invoice is around 50/50, so an invoice of £200 will have £40 vat £80 labour & £80 retail parts sold. So the figure of £8230 now becomes £4115 for labour hours sold (income) just to cover the complete running costs of the business.

At this point I would not consider the mark-up of parts (usually around 30 to 40 percent) as I considered this income as a bonus.

I always based my business objectives of making my garages sustainable & profitable on labour hours sold. You then calculate the potential labour hours you have available to you to sell, think of the number of ramps and working bays times the number of productives (five ramps/ technicians x seven hours per day) x five days per week for 46 weeks in the year which takes into account holidays, training and sick days etc… Stay with me!

So if we use the calculation above the potential labour that can be generated will be 175 per week and if we multiply that by 46 weeks, we potentially can achieve 8050 labour hours (income) per year. Now we already know that we need to generate £395,000 per year to meet our fixed cost expenditure without making a profit, if we then divide the potential labour hours available (8050) by running costs £395,000 we get a labour rate of £49 per hour.

REAL TERMS
Now an important point, whatever labour rate you set will not necessarily mean that is what you recover or receive in real terms. In my travels up and down the country reviewing many different independent garages I how found that most do not sell more than four hours of labour per technician per day. A low figure which has a dramatic impact on the overall labour rate originally charged.

If your labour rate is say £50 and you are paying a tech to be there for eight hours, the labour rate is actually approx. £25 per hour. That’s called a recovery rate. Now this figure will fluctuate due to many factors like, productivity, utilisation, efficiency of the workshop, types of jobs you undertake, skill level, tooling and equipment that you have and any discounts as well as small repairs (bulb changes, lubricant top-ups) that are not charged for.

WILLING CUSTOMERS
There are many consumers willing and able to pay more for a service or product as long as they feel they have received value for money. I did not want to be in the same bracket as every other independent garage business offering the same services as everyone else not really offering anything different. This is much harder as we are all then trying to attract the same customer and it only pushes labour rates down or they never seem to go up for the right reasons.

The other concern I have with our sector both franchises and independents that advertise lower labour rates advertised for older vehicles. This drives me mad, why should we charge less? Is it because some other technician is going to come out of the tool cupboard who has less skill, paid less, who only works on older vehicles, so we can charge less? Of course this is nonsense, it’s the same techs, their skill level is no different when applied to older or newer vehicles.

I am happy to report that when I sold Brunswick Garage in December 2015 our labour rate was £90 per hour. However our actual recovery rate was £82 per hour, extremely healthy and unmatched as far as I am aware.

My final comment is, whatever your labour rate is, always remember that even if its higher than most, you must be able to justify it if and when questioned by your customers. You must ensure you continually explain the services and products you offer, and communicate the benefits why people should use your garage rather than competitors.

DON’T FEAR CHARGING HIGHER
When I began Brunswick Garage I knew my labour rate (£82) would be way above what other local independent garages charged. The average was around £50 in my part of North London. This did not bother me at all because I knew what I was offering potential customers, no one else could or would match us in terms of facilities, skilled staff, OE equipment and tooling, etc. So my labour rate was set to cover these costs and leave me a reasonable profit to keep investing in my business and people.

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HELLA SIGNIFICANTLY GROWS SALES IN FISCAL YEAR 2015/2016


HELLA_Logo_3D_Background_4C_300dpiPROMOTIONAL ARTICLE ON BEHALF OF HELLA

HELLA KGaA Hueck & Co., a globally leading supplier of lighting technology and electronic products for the automotive industry, increased Group sales by 8.9 per cent to about EUR 6.4 billion in fiscal year 2015/2016 ending on 31 May 2016 (previous year: EUR 5.8 billion). Adjusted operating earnings (EBIT) also increased by 7.1 per cent year on year from EUR 445 to EUR 476 million. The adjusted EBIT margin was 7.5 per cent (previous year: 7.6 per cent). Special items with negative impacts on earnings – which include particularly the effects of the extraordinary supplier failure in China in September 2015 – pushed EBIT down by approximately 2.3 per cent year on year from EUR 430 million to EUR 420 million. At the reporting date on 31 May 2016, HELLA had about 34,000 permanent employees, almost 5.7 per cent more than in the previous year.

“We have again grown strongly in 2015/2016 in what has been a challenging market environment,” says CEO Dr Rolf Breidenbach. “We are especially proud that HELLA could improve sales across all three segments – Automotive, Aftermarket and Special Applications. This confirms us in our belief that our focused product portfolio and our broad global footprint have put us on the road to success. We intend to continue down this route going forward.”

Sales increase across all segments – Automotive remains growth driver

The Automotive segment again recorded significant growth in fiscal year 2015/2016 on the back of new products and a strong automotive market. External segment sales grew by 10.1 per cent to EUR 4.8 billion (previous year: EUR 4.4 billion). Due to an exceptional, non-recurring charge of EUR 47 million from the failure of a Chinese supplier in September 2015, the earnings of the segment declined by EUR 11 million to EUR 343 million. Growth was driven predominantly by new product launches – including complex LED technologies, electronic systems and components for energy management, driver assistance and electronic steering. HELLA’s broad regional presence was also beneficial.

The Aftermarket segment generated robust sales growth in fiscal year 2015/2016. External segment sales increased by 5.9 per cent to EUR 1.2 billion (previous year EUR 1.1 billion). Operating earnings grew by EUR 7 million to EUR 80 million. Growth was driven mainly by the wholesale business in Denmark and Poland, the garage equipment business and the tangible recovery of the independent spare parts market in Europe.

The Special Applications segment succeeded in stabilising in spite of the still weak demand in the agriculture sector. Sales in the segment grew by 2.0 per cent to EUR 315 million (previous year EUR 308 million). EBIT declined from EUR 19 million to EUR 5 million which resulted from the operating development in the Industries and Airport Lighting sub-segments and the sale of these activities. HELLA has sold these sub-segments in May of the past fiscal year in the context of its portfolio optimisation.

Emphasis on research & development ensures technology leadership

Research & development expenditures in fiscal year 2015/2016 increased by EUR 80 million year on year to EUR 623 million or 9.8 per cent of Group sales, up from 9.3 per cent in the previous year. They resulted mainly from the development of complex innovative product generations and investments in the global development network. The number of employees working globally in research and development increased to about 6,400 in fiscal year 2015/2016. By now, almost every fifth HELLA employee works in research and development.

“Technology leadership is a key differentiator for HELLA,” says Dr Breidenbach. “The passion to innovate and investments in new technologies are integral parts of HELLA’s DNA and the cornerstone of additional global growth.” Today, HELLA‘s development activities in the lighting business focus inter alia on so-called high-definition headlights that improve visibility with several hundred thousand of lighting spots each of which can be activated individually and which result in a significantly higher resolution. In electronics, HELLA supports its clients in the development and implementation of advanced functions that correspond to global market trends including autonomous driving, connectivity and energy efficiency. HELLA continuously adds to its already extensive know-how in these areas.

Solid financing

HELLA continues to rely on its solid long-term financing as the foundation for profitable organic growth. As of 31 May 2016, the equity ratio reached 40 per cent, up one percentage point year on year from 39 per cent. Liquidity (cash and short-term fiscal assets) amounted to about EUR 914 million.

Growth also driven by international networking strategy

In addition to its core business, HELLA also follows a cooperation approach: its international networking strategy has been designed to drive growth further through partnerships with other companies in joint ventures, mainly in order to gain access to complimentary technologies, tap into new markets or client segments and benefit from economies of scale. Overall, external sales of companies recorded at equity amounted to EUR 3.3 billion, out of which EUR 1.3 billion were attributed to HELLA. The pro rata at equity result reached EUR 53 million.

Proposed dividend of EUR 0.77 per share

The management will ask the annual general meeting to approve a dividend of EUR 0.77 per share for fiscal year 2015/2016. This dividend will remain in line with the previous year in spite of the non-recurring charges. Based on 111,111,112 no par value shares, the total dividend payment would amount to EUR 86 million.

Outlook for fiscal year 2016/2017

HELLA also anticipates positive business performance in fiscal year 2016/2017. This outlook is supported by the Group’s three strategic approaches: HELLA will continue to focus strongly on building its own market position based on its significant technological know-how and innovative product solutions that cater to the key mega trends environment and energy efficiency, safety and styling and comfort. HELLA also intends to further advance its global expansion, mainly in China and North America (NAFTA) where the company has identified promising opportunities. The objective is to further strengthen HELLA‘s position as a core vendor and solutions supplier to the automotive industry. In addition, HELLA seeks to further increase its own operational excellence in the global HELLA network.

For fiscal year 2016/2017, the HELLA Group expects sales and adjusted EBIT growth in the middle single-digit percentage range and an adjusted EBIT margin that is more or less at the prior year’s level.

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HALFORD’S RETAIL PERFORMS WELL, BUT CYCLE SALES DEFLATE

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HALFORD’S RETAIL PERFORMS WELL, BUT CYCLE SALES DEFLATE


Halfords_CEO

CEO of Halfords Jill McDonald

There are mixed results for big-box retailer Halfords as it announced a small overall rise in sales across it’s accessories, consumables and technology and another small rise in servicing and parts, but a decline in cycling revenue.

Most of the rise is due to a swell in sales of child seats, which enjoyed double-digit YOY growth. Car accessories overall rose by 4.4 percent, although ‘enhancement’ products such as sat-navs fell, although this was offset by a rise in dashcam sales.

The wet first half of the year also contributed to a 2.3 percent YOY rise in wiper and bulb sales. Perhaps surprisingly given the mild conditions, the group also posted steady results from battery sales.

However, the performance of car accessories couldn’t hide the fact that sales of bikes and related parts were down. Bikes make up around a third of Halfords’ total revenue and the company blamed the wet weather for a drop in sales. “Casual cyclist don’t like the wet weather, and there is not a lot we can do about that” CEO Jill McDonald was quoted as saying by the Daily Telegraph. The company plans to give bikes a shot in the arm with a 20 percent discount in August and new ranges branded by Olympians Laura Trott and Bradley Wiggins.

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WHEN THE OFFER IS ON THE COUNTER


Pri Chauhan – When you quit, expect a leaving card, cakes…and possibly a counter offer. But can you have your cake and eat it?

counter_offer

When you decide to leave the company you work for, you should expect two things:

A) A massive goodbye cake (probably bought from the local supermarket with petty cash).

B) A counter offer to try and keep you in the business.

If you accept a counter offer, you probably won’t get the cake, but it’s common to receive a counter offer either at the time you hand in your notice or during the notice period itself.

The question is, what does that mean for your decision to leave… and should it stop you from moving on?

You should think very carefully and be sure you have considered all your options. (Unless you are leaving to become an F1 Driver, in which case absolutely nothing should stand in your way). When it comes down to it, only you can make this choice but to try and help, we’ve made a list of the things you should think about:

MONEY
If your resignation was purely a salary negotiation tool, then congratulations: the money is yours! This is not a tactic we would recommend as you risk failing to win a counter offer and having to actually resign when you don’t want to. This happens on numerous occasions in the aftermarket at various levels up to and including senior management jobs.

There are other, safer ways of getting a salary review, like just asking for one. If this is what it takes to be paid what you are worth, you should ask yourself if this is somewhere you want to be.

If your resignation wasn’t all about money then you need to work out what else is on offer. Consider these questions;

1) “What can the company do to reassure me that things will be different?”

2) “What would need to change for me to be happy?”

The truth is that the same circumstances that made you to consider a change will repeat themselves in the future and you need to decide whether more money is enough to make it OK this time around.

JOB SECURITY
In an ideal world a retracted resignation could just be swept under the rug and nothing would change, but once you’ve quit, it’s out there and you can’t take it back. The fact that you handed in your notice marks you out as different from the rest of the team; your boss knows you were willing to leave and that means you have the potential to do it again. If you need to work alone, perhaps outside normal hours, you might find that your boss is suddenly suspicious of your motives – and might ask to ‘borrow’ your key, which funnily enough, you won’t get back. The trust has gone and you might well be regarded as an outsider.

Statistics show the probability of voluntarily leaving within 6 months of accepting a counter offer is extremely high – around 80 percent. The same probability exists for employees being let go within a year of accepting a counter offer so keep that in mind before you turn down the chance to move on.

PROMISES
When it comes down to it, you have to decide whether the offer solves the problems that drove you to resign. With a few unfortunate exceptions, the decision to move to a new company should have little to do with ill feeling toward your current employer, and everything to do with personal growth. The most likely reason for you to have accepted a new role elsewhere is that you considered it to be the right step to take your career in the direction you want.

Before you accept a counter offer, sit down and ask yourself what you want out of life and what you want from your career. Be honest with yourself about what you need to do and where you need to be to achieve your goals. This is by far the most important thing to consider and should be the key influence on your decision.

OFFERS NOT ALWAYS FINANCIAL
Not every company will make a counter offer – and if they do, the offer made might not be financial.

In my experience (writes Editor Greg Whitaker) companies are far more likely to offer a ‘promotion’ to another role, or placate you that jam will be served tomorrow, when there will be more resources available for you to do your job. If you’ve made the decision to move on, as Pri says in the article, you should stick to it. Offers, (including non-financial ones) are rarely made in your interest, they are made because you company knows that it will no be easy to replace you.

For more on the subject, contact Pri on 0845 643 0497 or click pgautomotive.com

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THE BUDGET FOR AFTERMARKET BUSINESS


The March 2016 Budget seemed to offer little to big business but offered concessions to small firms. Richard Wild reports

Richard WildThe Chancellor’s Budget this March was eagerly awaited, not because it was such a rare occasion (it was effectively the fourth in a year if the Autumn Statement is taken into account), but because many expected either radical changes or limited proposals because of the forthcoming vote on EU membership.

Most of the coverage in the mainstream press concentrated on beer, tobacco and of course the sugar tax. However, for businesses – and particularly for business owners.

The main changes from 6 April this year that most will be interested in are the new Personal Savings Allowance, Dividend Allowance, and the higher rates of tax on dividend income. Business owners who pay themselves by a mixture of a salary and dividend will need to review this to see to what extent they are affected by these changes. Indeed, in terms of personal taxation, Class 2 national insurance contributions for the self employed are to be abolished from April 2018.

Further, the Chancellor is to raise the threshold for paying income tax to £11,500 by 2017 while the threshold for paying the higher rate of tax is also to be raised, meaning that the high rate threshold will rise from £43,000 to £45,000 in the tax year 2017/18. There was also a surprise reduction in the main rates of Capital Gains Tax (CGT), which is payable on the sale of assets that have increased in value, such as property investments and shares although investments in residential property will still be taxed at the previous, higher rates. The changes mean that from 6 April 2016 the 18% rate of CGT falls to 10% and the 28% rate of CGT falls to 20%. But there was more in the budget for businesses.

CORPORATION TAXATION
Many will be pleased that the Chancellor announced a range of measures to prevent gaps or deficiencies in the tax rules from providing opportunities for multinational companies to minimise the tax that they pay. However, he also announced that corporation tax was to be to cut to 17% by April 2020.

EMPLOYMENT COSTS
While not a tax measure, the new mandatory living wage will come into effect from 1 April 2016, set at £7.20 an hour for workers aged 25 and above, representing a £900 increase in earnings for a full-time worker on the current national minimum wage. The minimum wage will be increased from October 2016 for workers aged between 21 and 24 (to be £6.95), 18 and 20 (to be £5.55), 16 and 17 (to be £4.00) and apprentices (to be £3.40).
Know How

On the tax front, and while previously announced, there are many changes to the employment taxes rules which businesses need to be mindful of, all taking effect from 6 April 2016.

First off there’s the abolition of dispensations which save the reporting to HMRC of expenses and Benefits In Kind (BIKs) paid to employees. Dispensations will be replaced by an automatic reporting exemption for approved reimbursed expenses. Any existing dispensation will no longer be valid after 5 April 2016. From that date, any fixed rate expenses payments outside the rates set in law will need to be agreed again with HMRC. This even includes where an industry approved rate is being used, such as the Road Haulage Association rate for lorry drivers. Any employer with existing bespoke rates agreed in their dispensation will need to reapply for approval of the rate with HMRC before 6 April 2016. If they don’t, the dispensations will no longer be valid and the amounts will therefore be subject to tax and NIC.

The abolition of the £8,500 limit for BIKs means that all employees, no matter their level of pay, will need to be considered when determining whether it is necessary to report any BIKs received on form P11D.

BUSINESS RATES
Whilst not an HMRC tax, business rates can represent a significant cost to businesses. The Chancellor confirmed that 100% small business rate relief will continue for properties with a rateable value of £6,000 or less. From April 2017, 100% small business rate relief will be extended to properties with a rateable value of £12,000 or less. Businesses with a property with a rateable value between £12,000 and £15,000 will receive partial relief. The Chancellor estimates that 600,000 small businesses will pay no business rates at all, and an additional 50,000 businesses will receive partial relief.

MORE TAX
A number of fairly specific measures were also announced, which might impact on you depending upon the nature of your business or how you are structured. These include: Stamp Duty Land Tax, Insurance Premium Tax and salary sacrifice. The latter warrants a little explanation. Salary sacrifice arrangements enable employees to give up salary in return for benefits in kind that are often subject to more favourable tax treatment than if paid by way of salary. The government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes, although pension saving, childcare and health-related things such as cycle to work should continue to benefit.

MAKING TAX DIGITAL
In the March 2015 Budget the government committed to transform the tax system through digital technology and end the need for annual tax returns. It has ambitious plans to require businesses to keep digital accounting records, and require them to update HMRC from these digital records at least quarterly. Some of these measures will be introduced from April 2018, with the remaining changes coming on stream in April 2019 and April 2020. Businesses will be able to make ‘pay as you go’ tax payments, to ease the impact of their final tax bill. Whilst this seems some time away, businesses should start planning for these changes now, especially if manual accounting records are currently being kept.

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RENT, LEASE OR BUY?


Adam Bernstein – What is the most efficient way of getting your hands on new kit? The answer might just surprise you

Adam Bernstein

Adam Bernstein is a freelance business writer, specialising in management, marketing and law

No matter the size of business or the sector you operate in, you will, from time to time, need to acquire assets or capital equipment such as vehicles, computers or other machinery just so that you can operate. The question is how you pay for them. Do you use cash to save on paying interest, but deplete your reserves? Or do you rent or lease the equipment but with, of course, the inbuilt charges added on by the supplier?

There are advantages and disadvantages to all three options. Part of the mental mathematics relates to the term of any lease or rental agreement and the expected life of the item being acquired. Too long a term and it’s entirely possible that an asset that needs replacing before the agreement is completed, the result being a dent in your cashflow as you need to finance two pieces of equipment at the same time.

BUYING OUTRIGHT

As with anything, buying outright is generally always the cheapest option, especially if you have cash on one side that can be spared or if you consider ownership important. However, capital expenditure of a significant value when compared to the size of your business will undoubtedly have an effect on your short term cashflow. Simply put, there may well be circumstances where the wiser move is to rent or lease rather than buy outright.

Another consideration is that you may need some form of bank borrowing – an overdraft or loan – to fund the purchase. While bank finance can be hard to obtain, an overdraft should be avoided if for no other reason that it may be withdrawn at short notice with early repayment of loans demanded – this can present a clear hazard to cashflow and even the continued existence of the firm.

By buying, rather than leasing, you may not be able to take advantage of the economies of scale that the lease or rental company can secure. In other words, the unit cost of the device will cost more even though you may pay no interest. But there is another potential pothole. Buying on your own initiative could involve missing out on any product knowledge and experience that a leasing or rental firm may have built up over time. They have no vested interest in what you buy (only in that you buy). The equipment seller, in comparison, would have an interest in what you buy and at what margin they can make.

There’s also the problem of matching the purchase with the timing of income (unless, as we’ve seen, you can buy from reserves) which may put cashflow at risk. Lastly, buying outright means that you will be responsible for the maintenance and repair of the asset. Your own views on risk will determine your attitudes to breakdown or replacement.

HIRE PURCHASE AND LEASE ARRANGEMENTS

As we’ve seen, paying cash for a purchase means depletion of cash which could be used elsewhere. The alternative is paying on installment. But with interest on any hire purchase and lease agreements as part of each payment you will pay more for the asset in the long run.

Also, with leasing you may never own the asset outright (although some lease arrangements, cars being a good example, let you buy the asset at the end of the agreement for an additional final amount). The key benefit of a lease is that you can replace equipment without the expense of buying newer models or having the later problem of disposal.

Hire purchase, on the other hand, allows for you to legally own the asset once all the payments have been made.

One important calculation in the ‘lease, rent or buy’ decision making process is a comparison of the interest rate applied by the finance company, the interest likely to be charged by a lender on a loan or overdraft arrangement, and the interest that can be earned by having cash on deposit. It’s also important to note any other additional fees which may be levied on an agreement as well as the costs of breaking an agreement early.

TYPES OF LEASE

Leases come in a number of variants and you need to consider which is most suited to your circumstances and the item that you are seeking to acquire. For our purposes we’ll consider finance leasing and operating leasing – the two main types.

Finance lease

With a finance lease you are effectively paying to use the item over its useful life – typically three years plus – after which you have the choice of selling or scrapping the item or paying a nominal rent for it. The leasing firm generally will not want it back. This is because the leasing company will recover the full cost of the equipment, plus charges, over the period of the lease through your payments (usually monthly). The benefit to you, the user, is that you do not have to worry about any of the maintenance and insurance issues relating to the item.

Operating lease

Some equipment can have high maintenance costs, become quickly outdated, or is only used occasionally – computers and other IT equipment for example. These items are prime candidates for an acquisition via an operating lease.

Operating leases can offer great benefits if asset is not required for the whole of its useful life. Lower costs follow because at the end of the lease the item will revert to the leasing company for re-lease elsewhere. Again, maintenance and insurance matters relating to the asset will not be your responsibility – these will belong to the leasing company.

Leasing or renting assets has a number of advantages that include improved cashflow because there’s no need to pay up front for an item; a higher level of equipment can be specified because the cost can be spread over time; budgeting is easier as costs and interest are fixed over a given period of time; income and payments can be matched over the lease agreement; the burden for breakdown risks belongs to the leasing company; and equipment can be upgraded for a small fee (whereas owning outright means a sale and purchase process).

But as there advantages of leasing and renting, so there are disadvantages to consider.

The first to note is that agreements usually demand a deposit and/or some payments being made in advance. As you will effectively be borrowing from a firm with a profit motive, renting or leasing will be more expensive than buying outright. Further, by taking on an agreement you will be locked into an  inflexible medium or long-term agreement, which may be difficult, or at least expensive to terminate. and of course, leasing means that you do not own the asset, although you may be able to buy it for a lump sum payment at the end of the term. Lastly, many leasing companies require their customers to be VAT registered.

TAX CONSIDERATIONS

VAT

Rent, Lease or Buy? HMRC has specific rules on how tax reliefs are applied when acquiring business assets and these vary depending on whether you buy them outright, or on the type and length of the lease. This also affects whether VAT will be charged upfront or periodically.

The first thing to note that the cost of renting or leasing an asset is deductible as a business expense so this can reduce your overall tax bill.

If you expect to own the asset at the end of the lease or hire purchase period, you will have to pay VAT on the whole value at the start of the contract. If you are VAT-registered and want to reclaim VAT and sell the asset, you may have to account for VAT on the selling price. You may also have to account for VAT on the value of the asset if you give it away for free.

If you will not become the owner of the asset at the end of the agreement, you will find that VAT will be payable periodically. (For leased vehicles, the right to recover VAT is restricted).

Capital allowances

When you buy plant, machinery and IT equipment, you can apply capital allowances and effectively deduct a proportion of the cost from your taxable profits. For the first £200,000 of capital expenditure in a year the Annual Investment Allowance (AIA) allows a 100% writedown in the first year. Capital allowances can be claimed if you buy outright, through hire purchase or the item is acquired under a long funding lease (generally a lease of at least five years). In essence you can’t claim capital allowances with shorter leases, but because the lease is a trading expense, you can usually deduct the full rental costs from your taxable income.

TO CONCLUDE

There is no right or wrong answer as to whether buying, renting or leasing an item is the best option. The considerations can be personal and will depend on the likely use, lifespan, cashflow and interest and other charges. As the accounting body, the ACCA, notes: “Don’t let the tax tail wag the commercial dog. 100% relief for AIA may look appealing, but you must look at the wider picture, and whether owning the asset is really best for your long term plans.” Good advice from an accountant is essential.

EXAMPLE

A company wants to acquire equipment for £7500. It can buy it outright or lease it over three  years, paying quarterly. The company’s tax rate is 20%. The capital allowance rate is normally 18%, but in year one, the AIA allows 100% write-down for your first £200,000 of capital expenditure per annum. The example shows that outright purchase is still the lower cost but leasing can be less expensive than it appears and will ease cashflow.

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NEXUS DISCUSSES UK AFTERMARKET


Around 200 aftermarket suppliers met buyersNexusUK at the Nexus Business Forum held in Montreux, Switzerland in February.

The Nexus organisation was founded a couple of years ago by 14 European car part distributors, including the UK’s Parts Alliance. Describing itself as a ‘value focussed alliance of aftermarket leaders’ it has already achieved a total consolidated turnover of €7.25 billion in 2015 and has plans to extend this to €9 billon by the end of the next accounting period.

With sums of money this large floating about, it is perhaps no wonder that suppliers were only to keen to get a plane to the magnificent Montreux Palace hotel to engage in complex ‘speed-dating’-style sessions with the buyers. The event left plenty of time for less pressured networking and discussions as well.

In addition to the business meetings a plenary session was held to discuss the nature of the aftermarket including threats and opportunities that would likely happen over the coming months.

The event was well attended by many well-known aftermarket faces. We spotted Peter Sephton and Stan West of The Parts Alliance and GSF respectively, while on the supply side we met Laurence Bleasdale of TMD Friction, Nigel Cole from Denso and Andreas Habeck from Hella among many others.

We were particularly interested to note that an Iranian company, Alborz Yadak Trading, were among the companies competing for the attention of the buying groups. Iran has had a large manufacturing base for decades, but has been unable to trade with Western companies for years due to sanctions. Now diplomatic relations are open again, it will be interesting to see how products from the country are received into the aftermarket over the coming years.

There was also a panel discussion on the threats and opportunities that the connected car can bring.

Gael Escribe, Chief Exec at Nexus described how the reach of the organisation was to cover parts trading over the whole world. “Our vision is for one aftermarket and for Nexus to be a leader and not just a challenger” he said, reminding the audience that since foundation the organisation had achieved 59 supplier contracts and that places such as China that have traditionally been thought of as simply places where parts are made are now starting to consume components from around the world for their domestic parc.

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WOODFORD GREEN OPENS A NEW PAGE


Ben Buchannan shows us around the latest branch in the Andrew Page network
Andrew Page Woodford Green

The newest branch of Andrew Page in Woodford Green has thrown up the shutters. In fact, on our visit the doors were wide open for business open in the most literal way as a motor fault meant they couldn’t be shut. Teething troubles aside, we were keen to take a look at the latest branch in Greater London.

As we entered the reception area, staff seemed friendly and professional, dealing with customer queries face-to-face and over the phone. South Divisional Manager Ben Buchanan and Branch Manager Gareth Jones welcomed us, both of whom are old hands in the aftermarket. Buchanan joined AP from Allparts having previously worked for Bosch, Cosworth and even a spell in a Lamborghini franchise. Meanwhile, Jones worked for arch-rival ECP for 12 years before transitioning to Branch Manager for the AP store in December.

Once we ‘d been properly introduced, we were keen to find out how the store has taken off since the launch: “Within four weeks of service, daily rates are up and targets have been met already”, Jones said. “We are hitting between 80 – 100 deliveries a day and I’d expect to double this in the next five weeks”. The warehouse currently operates six agency scooters and four vans delivering auto-parts to independent garages and national businesses across the area.

Stockroom

Andrew Page WarehouseThe 5500 sq. ft stockroom has been reconfigured to include a large mezzanine giving it a holding capability equivalent to 11,000 ft. “We have five miles of shelving running down the warehouse. We have managed to do this because of how we packed the stock”, Buchanan explained, adding that the number of SKUs range between 26,000 and 50,000 as the branch adapted its stock profile for the local area.

However, the fringe between Essex and London is a highly competitive patch – and not one where this factor really had a toehold in the past. Explaining the decision to open there, Buchman said: “We came to the Woodford Green because the main factors are under represented here”. He added that ECP dominates the area and there was a feeling that local garages might buy into the added-value services offered by Page, such as IMI training. There are also a number of the national accounts covered by the firm nearby, including an F1 Autocentre in an adjacent unit and a Kwik-Fit a short dStockroomistance away.

Prior to starting, the Woodford Green staff had to undergo an intense six-week training programme provided by various managers from the company. The store’s training services for their team and external businesses is something thats helped the branch rank against the competition.

As our tour came to an end, we asked the team what they’d hope to achieve by the end of 2016: “The forecast so far is looking good and by the end of February, we hope all our sales guys will have met and established professional relationships with all our customers”, Jones responded.

“We are looking to engage with more independent and national businesses within a five mile radius of the branch. We are not focusing so heavily on products in the spring and summer, but more about releasing as much bandwidth within their business. The more the technicians can do and work on is how they will increase on how many parts they can buy, and therefore buy from us”, Buchanan concluded.

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