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significantly smaller upfront investment. This frees up valuable capital that can be directed towards other essential needs, such as marketing, hiring additional staff, or investing in more specialised equipment. Finance agreements also provide predictable monthly payments, simplifying cash flow management and budgeting. With fixed costs, you can plan your finances more effectively and avoid unexpected financial burdens.”
“As the drainage industry constantly evolves with new and more efficient technologies, financing allows you to leverage these advancements by acquiring the latest vehicles and equipment as they become available. This ensures your business remains competitive and utilises the most advanced tools for optimal performance.”
Chris Fitzsimmons, owner of Dyno-Rod Drains franchisee P Fitzsimmons Ltd, adds, “Fleet acquisition and operating the fleet are amongst our most significant costs. Financing is an excellent option as we can build this into our business plan. This ensures we have the right level of resources and the right assets to manage demand and provide a great service. Working with a supplier looking at what’s around the corner on your behalf also adds value and helps your fleet plans run more efficiently. Also, what may be suitable for our business now may not work if we expand and need access to more assets. That relationship with a key supplier and
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access to efficient funding options help manage growth and leverage opportunities.”
Finance Products
For businesses, there are three main types of finance products – Finance Lease, Contract Hire and Hire Purchase. Each product is structured differently and provides benefits and drawbacks. It’s worth noting at this stage that it’s always recommended to get proper professional financial advice before taking out any agreement.
Finance Lease
Finance Lease is a flexible option which gives you the use, but not ownership, of a van during the period of the contract as the van remains in the ownership of the finance company. Every month you pay an agreed ‘rental’ amount which is determined by the initial cost of the van, how long the lease will last for and the end balloon payment. The usual length of the agreement (the primary period of hire) is between two and five years. Deposits are not taken under a Finance Lease, but advance rentals are usually paid at the start of the agreement.
Paul Jackson, Director at Capital Fleet Solutions highlights some of the benefits to drainage companies, “Finance Lease is a good option for businesses that rely heavily on their vans, either as they cover many miles, or the van could see a lot of wear and tear. With the intensity of use that drainage companies have, and
| June 2024 |
www.draintraderltd.com
the nature of the work, the fact that Finance Lease offers no mileage restrictions is an attractive prospect. If you’re VAT registered, the VAT paid on monthly rentals is reclaimable as well.”
Contract Hire
Contract Hire allows you to pay a set monthly fee for an agreed period and mileage allowance. Road Tax, maintenance and breakdown cover can be included for an additional fixed cost, so this is a good way to help with any ongoing costs at the same time.
Contract Hire agreements are designed to cover the depreciation costs of the van over the term plus interest, but not the full cost of the van. The rental cost is based on the price of the van excluding VAT. Interest is added to the ex-VAT price of the van and the balance (minus the leasing company residual value risk / balloon payment) is paid over a fixed period. The rentals attract VAT at the current rate. Deposits are not taken; however advance rentals are usually required at the start of the agreement.
One of the big differences is that with Contract Hire you always hand the van back to the leasing company at the end. You are not responsible for the disposal or sale price of the van. A Contract Hire agreement can be ended at any point during the agreement. However, there could be large penalties for doing this. You may also have the option to extend the length of the contract past the Primary Period of Hire. There may be a
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