To buy…or not to buy. Cold Chain News spoke to Dawsongroup managing director Steve Miller about acquisition methods
Steve Miller, managing director, Dawsongroup, an independent, family-owned business with over 22,000 assets
Milton Keynes,UK: Pressures on cash-flow and investment funds across the sector appear to be tightening again. Many point to recent cost increases such as the new Living Wage, with its further big increase to £9/hour due in 2020. There can be little argument against the Living Wage principle, but for hard-pressed businesses barely recovered from recession, and faced now with the uncertainty of the UK European referendum, it is another financial challenge – and far from the only one.
Hard-working assets, left unchanged during the recession, are increasingly reaching their ‘sell-by dates’, by reason of either fashion or function. Or both! Then there are always unpredictable distress issues. A major unit fails. Fire takes out a blast freezer. Trucks need updating. Fork-lifts replacing. Whatever the detail, what increasingly separates survivors from victims is the way we deal with these issues. Specifically, how we address the financial impacts on cash-flow and investment.
Of course, manufacturers line up very happily to sell replacement or additional ‘kit’. That’s the easy bit…. or is it? Because it can look a lot less ‘easy’ when you start to add up the capital costs, often crippling for a business already faced with the initial problem.
Temperature-controlled trucks and vans are a classic option for rental, leasing or outright purchase
Whatever the motivation behind asset acquisition, the common factor is frequently speed. The need doesn’t go away, but the speed needed to resolve it can be costly: while the cost of going too slowly can be even greater. So what are the merits of the varying options? The quickest and most economical routes? More important, what are the benefits, or burdens, that accompany them?
For years, buying was the nation’s preferred route. Ownership seemed part of the English psyche, driven in part by the fact that, almost alone in Europe, we owned our own homes. That was, and still is fine, property is almost uniquely an asset that can appreciate over time. Commercial property carried largely the same benefit, but almost every other asset was a liability, often losing significant value the day it was delivered.
So, in the 21st Century, what are the alternatives to ownership and how do they stack up? Perhaps best known through its individual operating businesses trading under the Dawsonrentals banner, is a long-established, independent company successfully supporting the cold chain sector, and many others, with a wide range of assets – from fork-lifts to temporary kitchens, portable and permanent cold stores, vans and so on. More importantly, doing so across a broad spectrum of acquisition methods: outright purchase, short-term rental, operating leases, structured leases, loans, HP, structured HP, invoice discounting, re-financing and factoring.
A list like that makes a daunting arena for the non-specialist to play in. Running a cold chain business, be it manufacturing and processing or warehousing and distribution, is daunting enough, without having to try and wade through financial small print. We asked Steve Miller to give us the ‘big print’ answers to the question, ‘To buy…. or not to buy? ’
Portable cold stores, ideal candidates for short and long-term rental or lease, are capable of highly effective performance in a variety of situations
He told us, “In truth, though we offer the option of outright purchase through hire purchase across all our asset groups, we strongly recommend businesses today away from ownership, toward what we call ‘Usership’.
After all, why take-on long-term capital investment commitments, often on depreciating assets, when you don’t have to? It rarely makes sense. There are enough demands already on company cash-flow and investment funding without adding unnecessary burdens to achieve simple asset acquisition.
“When you strip it right back to basics, ownership these days looks increasingly like a ‘vanity project’. Of little value, other than to an owner’s sense of self-esteem perhaps, and certainly of no real worth to their business. Worse in fact, as it can have a genuinely detrimental impact on finances.”
While many businesses still buy materials handling equipment, large scale users often supplement with rental and leased units. All have their merit and all come with full 24/7 support
So what then are the acceptable alternatives to ownership, we wanted to know?
Miller answers, “In simplest terms, most businesses have three basic options for asset acquisition. The first, of course, is good old-fashioned ownership. Companies can spend a lot of money up-front – on ‘instant’ ownership. Or, buy eventual ownership through hire purchase, which does at least offer the benefits of flexible deposits and repayments and improved cash-flow. It can also offer additional security, because, working through us, funding can be independent of existing arrangements customers may have with other providers. If you are going down this route, it’s nice not to have all your eggs in one ‘banking basket’!
So, though we have a view on making sure it is genuinely the best route for an individual business, we are not ‘psychologically or morally’ opposed to ownership in the right circumstances. In fact, we sell huge numbers of assets every year through our highly successful funding model, LHE Finance, which supports businesses not only buying directly from us but also from outside Dawsongroup. The scale of our annual purchases means there are few assets we can’t buy very competitively for customers, and then finance for them. They just need to talk to us.
“Then, of course, there’s rental, normally a short-term option from one day to one year
– a simple, cost-efficient ‘Usership’ route. Or contract hire, another key cost and operationally efficient ‘Usership’ approach: essentially long-term rental, but with a range of maintenance-related services included.
“And for companies sensitive about such matters, nobody need ever know you have stepped away from outright ownership. After all, when you see a liveried supermarket truck go by, you don’t think, ‘I wonder if they own that?’ Chances are they don’t. I know, because we supply thousands and thousands of liveried trucks, trailer and vans to hundreds of household names; all on rental or contract hire, depending on what suits their needs best.
“They get the benefit of a modern fleet, maintained and renewed regularly, but, more important, they keep their investment funds in the bank for the core needs of their businesses. And those almost certainly don’t include owning national vehicle fleets. And we do precisely the same thing with blast freezers, chill buildings, cold stores, fork-lifts, sweepers, portable cold stores, temporary kitchens and so on, right across the food and pharmaceutical sectors. Because customers of these businesses don’t turn up to view a supplier’s facilities and wonder who owns them; they are just pleased to see them using state-of-the-art assets.”
Understanding the terminology
Dawsongroup managing director, Steve Miller explains the financial jargon
Steve Miller, Dawsongroup managing director, didn’t mention leasing in his initial round-up of the options. So, where does that fit in, we asked? “Leasing is essentially an Americanism,” smiles Miller, “a trans-Atlantic word for rental. A lot of companies use it, almost as if it is somehow a new or different product. We can be guilty ourselves, but, in essence, the key options are the three I’ve outlined. Yes, we can refer to finance and operating leases when talking to customers, because that’s what they hear from some companies in the market. For us though, they are simple option variations to our contract hire programme.
“Our contract hire, unlike most offered by manufacturers, carries full repair and maintenance, 24 hour support and replacement assets if needed – even tyres and tax on vehicles. It also offers genuine budgeting bonuses, through low initial outlays, flexible terms – fixed throughout the hire, VAT recovery and inflation-proofing. And, at the end of the hire, assets come back to us so there are no disposal worries for the customer.
“An operating lease, is identical in every respect, but without repairs and maintenance, tyres and 24/7 support – ideal for those such as logistics companies with their own service workshops.
“At its simplest, a finance lease is just what it sounds like: a way of providing finance. In essence, it puts the lessee is in roughly the same position as if they had bought the asset – so too close to the downsides of ownership from my point of view. And, interestingly, it has rapidly fallen out of favour in recent times, as the obvious benefits of the other options have overtaken them.
A clearer picture
Steve Miller’s comparison of ‘Usership’ through the varying forms of rental, as opposed to ‘ownership’ through capital investment, was refreshingly simple. He summed it up neatly with his closing comment, saying: “As I explain to customers, ‘Usership’ genuinely does deliver operational flexibility as well as real cost efficiency. Because, at its simplest, the assets are theirs when they need them, ours when they don’t.”
“There should be no stigma whatsoever attached to not owning something you merely want to use. Indeed, it may well grow to become the defining difference between a company of the future and a company of the past. A sign of a business’s ability to focus its capital investment on things important to its long-term development, rather than merely functional requirements to help it run efficiently in the medium term.”
In a world where cash is still king, ‘Usership’ keeps it in your business. So the answer to the question, ‘To buy – or not to buy?’, it’s ‘Usership’ rules!
Posted on June 16, 2016
by Edwin Kalischnig