What is an operating lease?

An operating lease is an agreement offered by a Financier, fleet management or leasing company who gives the use of an asset, like a work Ute or a Van or even an excavator without ownership rights.  All the running costs of the of the asset such as;

Are included in the monthly lease cost for the designated term and the usage kilometers agreed to.

Currently operating lease costs are treated as a business expense.  Your monthly payment to the lease company will sit as an expense on your business’ profit and loss statement.  They are known as an off- balance sheet item.  As you are not the owner of the Ute and do not carry the ownership of any debt, the item does not sit as an asset or a liability on your balance sheet.

However..

as of January 2019, all new operating leases will sit as a liability on your business balance sheet.

Generally, an operating lease agreement avoids any administrative costs such as accounting requirements. It also gives added benefit for a user to just return the asset at the end of the lease period.

It is important to note, that as you don’t own the asset at the end of the lease therefore you don’t have the option of selling the vehicle for more than it’s worth after the period as you would with a finance lease. You also do not carry the risk of having to sell it for less.

How much will an operating lease cost per week?

Well that all depends on the type of item you are looking for.  Let’s say for instance you are looking at a brand new Toyota Hilux workmate. The leasing company will consider the following;

  1. What model of Hilux you would like,
  2. What Spec ‘s you want to add to the Ute (toolboxes, ladder racks, tow bar etc.)
  3. How long you would like to lease the Hilux,
  4. How many KM’s you travel per year (which will then determine maintenance and some of the depreciation costs),
  5. If you need roadside assist,
  6. If you want to bundle in fuel costs as well

The leasing company will package the cost into one monthly payment.  A base model Toyota Hilux 4X2 workmate with the tray and trade spec conversion will set you back somewhere between $120 – $150 per week.

Toyota Hilux Lease

 

 

 

 

 

 

 

 

 

After the last lease payment you return the Ute to the lease company and opt for a new lease on a new Ute.

Unsure whether this is the right option for you?

Give us a call on 02 9533 2393, let us help you find the right option for you and your business.

Coronavirus, how to get your trade business through a recession

Coronavirus is at the center of a media frenzy at the moment.  It seems like every news outlet is void of any story that doesn’t center around Coronavirus.  Absolutely, it is a serious problem due to the limiations in the healthcare system should the coronavirus spiral out of control. As of March 16 there are 298 confirmed cases across Australia with 134 currently in NSW as per the department of health’s current figures. 

How much of the media hype is justified remains to be seen.

As the government sets precautionary measures to try and flatten the curve of coronavirus cases, the country also faces the serious threat of returning to a devastated economy.  For many sole traders and small businesses, the problem is real.  The Australian construction industry employ’s over 1.2 million people and our country relies so heavily on it to flourish.  So how can Tradies ensure their businesses make it through the pandemic.

Cash is King

Cash flow is the number one biggest pressure on small businesses in any economy.  A good general principle is to look at stockpiling 3 months worth of operating expenses.  Unfortunately, this is easier said than done particularly in a situation that has popped up out of nowhere.

You should be taking the opportunity now to call on any invoices that you are owed by clients.  Clear your debtors book as best you can.

If your quite, why not try and pick up some quick jobs over the next week with a sale on your services. It’s not your usual margins, but it’s cash in the door and cash is king.

Spend Less

Always run lean.  This is a great opportunity to build in some good cost cutting measures.

Take full advantage of your suppliers payment terms.  Don’t pay a bill today if it’s not due for another 30 days. The cash is better in your account for another 29 days that it is in someone else’s. However, don’t avoid your debt obligations.  At all costs avoid hurting your credit score negatively by ignoring repayments on debt.

If cash is tight, call your lender and ask for a grace period.  Lenders need your business to survive just as much as you need it to.

Avoid new finance loans on vehicles or machinery for workers.  New debt obligations right now is not ideal unless it’s necessary.  Run month to month rentals which give you the option of handing them back no more to pay.

Australian businesses face a tough couple of months should the country face lock down periods.  But we are all in this together.  Don’t be afraid to reach out to your accountant or close friends and family for advice and help.