Return on investment.

[Chabs 0]

Hi everyone. 

I own a very nice independent dealer, and have traded for over 10yrs. 

We do a very good job, and have excellent reviews, on Facebook, google etc. 

My question is, what would be an acceptable return for someone who wanted to fund some vehicles. 

I would be doing everything and paying all the bills to do with the premises, advertising etc, they would basically be sale or return, I’m talking run of the mill cars, with maybe a £20k rolling pot. 

Let’s say I sold a car that made £1000 profit, how much should they get as a silent investor, not really working with me other than basic running about here and there.

Should it be a percentage of the cost price or a set amount out of the profit, what’s people’s opinions on what’s acceptable.

Thanks in advance.

 

Edited July 6, 2018 by Chabs

[EPV 631]

Call a stock funder and find out their costs. You shouldn’t give away anymore than what you would give to a stock funder or else you may as well use them. 

[umesh 336]

As EPV Says, ' Cost of borrowing the money' rather than % of any profit on vehicles etc, you have to remember you'er taking all the risks and doing the work, if you start paying them per car etc it could be a very expensive way to borrow money. Then again it depends on the risk factor from your investor too. 

[justina3 518]

Or price up a simple loan from a high street, these kind of deals dont make any sense to me unless your are unable to borrow money the conventional route then it kind of makes sense. 

But on the flip side if your unable to borrow money then the investor would adjust his rate to account for the situation what ever it may be. 

And i agree with the above paying per car unless its low percentage isnt going to go your way.

[Mark101 536]

I have only done it once and to be fair it worked well.

I did all logistics, advertising, prep etc, he bought the car and we split the nett profit equally on the understanding that if it comes back, we share the pain.

It was a one off and my best mates, so no real risk.

I guess if it is incremental business and the funder is prepared to stand any share of comebacks, what's to lose?

[Rory RSC 596]

31 minutes ago, Mark101 said:

I have only done it once and to be fair it worked well.

I did all logistics, advertising, prep etc, he bought the car and we split the nett profit equally on the understanding that if it comes back, we share the pain.

It was a one off and my best mates, so no real risk.

I guess if it is incremental business and the funder is prepared to stand any share of comebacks, what's to lose?

I don't think it deserves splitting equally. Answering calls and emails during any waking hour 7 days a week, being on site 7 days, dealing with finance apps, the part exchange prep and everything else takes up a lot of time and expertise. People get nothing by having money in the bank and a return of say £400 a month on a 20k investment would be pretty high. Owning a 2 bed buy to let and getting £500/700 per month back and owning it outright involves having £120k tied up. 

 

[trade vet 702]

I have experience doing this sort of thing as an investor and first of all I would need to see the last 2 years accounts.If you were sourcing the stock yourself,I would have to see the vehicle purchase invoices.I don’t think you can have set figures per vehicle,what we have done is base it on the quality of the deal.So if a deal goes wrong,duff swapper,big warranty claim,huge prep bill and there is no profit,the investor gets e.g.£50.However with good deals attracting resaleable swappers,prime finance and a very good profit margin then the investor should be able to earn up to £400.( but they are not many of them).So with a straight £1000 mark up less your vat less prep and delivery costs etc as you will net little so I would suggest £100- £125.Alternatively,If you are sending the investor to auctions to buy the stock on you behalf,you will have to pay their expenses on top.

[Screenman 47]

On 06/07/2018 at 11:16 PM, Chabs said:

Hi everyone. 

I own a very nice independent dealer, and have traded for over 10yrs. 

We do a very good job, and have excellent reviews, on Facebook, google etc. 

My question is, what would be an acceptable return for someone who wanted to fund some vehicles. 

I would be doing everything and paying all the bills to do with the premises, advertising etc, they would basically be sale or return, I’m talking run of the mill cars, with maybe a £20k rolling pot. 

Let’s say I sold a car that made £1000 profit, how much should they get as a silent investor, not really working with me other than basic running about here and there.

Should it be a percentage of the cost price or a set amount out of the profit, what’s people’s opinions on what’s acceptable.

Thanks in advance.

 

 

Never confuse profit with margin, would be my advice.

[Arfur Dealy 823]

I wouldn’t over complicate matters. Best ISA’s are offering 8% fixed for 2/3 years. If it was me, I would state if they invest 20k with no involvement you would guarantee a 10% to 15% negotiable return annually paid upfront. 

[Nick M.K. 574]

On 06/07/2018 at 11:16 PM, Chabs said:

I own a very nice independent dealer, and have traded for over 10yrs. 

Do you offer finance? If yes have a word with your rep. Your prime finance company will be able to give you a stocking facility at 3-5% annual interest. This is the cheapest way to fund your stock, cheaper than using your own money. 

[Chabs 0]

On 07/07/2018 at 7:30 AM, EPV said:

Call a stock funder and find out their costs. You shouldn’t give away anymore than what you would give to a stock funder or else you may as well use them. 

Yes, I have spoke to a couple as this route was my first thought, but unfortunately I don’t have the best credit rating so I’m not sure that’s an option. 

On 07/07/2018 at 8:07 AM, umesh said:

As EPV Says, ' Cost of borrowing the money' rather than % of any profit on vehicles etc, you have to remember you'er taking all the risks and doing the work, if you start paying them per car etc it could be a very expensive way to borrow money. Then again it depends on the risk factor from your investor too. 

Yes, it’s currently the way some of my business is done, and is proving to be unrealistic, it’s fine when everything is flying but during the quiet times it becomes a struggle. 

On 07/07/2018 at 8:48 AM, justina3 said:

Or price up a simple loan from a high street, these kind of deals dont make any sense to me unless your are unable to borrow money the conventional route then it kind of makes sense. 

But on the flip side if your unable to borrow money then the investor would adjust his rate to account for the situation what ever it may be. 

And i agree with the above paying per car unless its low percentage isnt going to go your way.

Unfortunately my credit rating doesn’t allow me to take a loan, which is a real shame as this is by far the cheapest option.   

[Chabs 0]

On 07/07/2018 at 10:00 AM, Rory RSC said:

I don't think it deserves splitting equally. Answering calls and emails during any waking hour 7 days a week, being on site 7 days, dealing with finance apps, the part exchange prep and everything else takes up a lot of time and expertise. People get nothing by having money in the bank and a return of say £400 a month on a 20k investment would be pretty high. Owning a 2 bed buy to let and getting £500/700 per month back and owning it outright involves having £120k tied up. 

 

This is my thought, I’m not greedy but I am here 7 days and have all the costs to cover etc. 

On 07/07/2018 at 10:20 AM, trade vet said:

I have experience doing this sort of thing as an investor and first of all I would need to see the last 2 years accounts.If you were sourcing the stock yourself,I would have to see the vehicle purchase invoices.I don’t think you can have set figures per vehicle,what we have done is base it on the quality of the deal.So if a deal goes wrong,duff swapper,big warranty claim,huge prep bill and there is no profit,the investor gets e.g.£50.However with good deals attracting resaleable swappers,prime finance and a very good profit margin then the investor should be able to earn up to £400.( but they are not many of them).So with a straight £1000 mark up less your vat less prep and delivery costs etc as you will net little so I would suggest £100- £125.Alternatively,If you are sending the investor to auctions to buy the stock on you behalf,you will have to pay their expenses on top.

This is the sort of thing I thought, in my mind I was thinking upto 15% of the original invoice price was acceptable, bearing in mind I average around 15 units a month.  

2 hours ago, Screenman said:

 

Never confuse profit with margin, would be my advice.

Good advice. 

37 minutes ago, Nick M.K. said:

Do you offer finance? If yes have a word with your rep. Your prime finance company will be able to give you a stocking facility at 3-5% annual interest. This is the cheapest way to fund your stock, cheaper than using your own money. 

Hi Nick,

Yes I do, I’ll investigate tomorrow thanks. 

[trade vet 702]

3 hours ago, Arfur Dealy said:

I wouldn’t over complicate matters. Best ISA’s are offering 8% fixed for 2/3 years. If it was me, I would state if they invest 20k with no involvement you would guarantee a 10% to 15% negotiable return annually paid upfront. 

I have experience doing this sort of thing as an investor and first of all would need to see the last 2 years accounts.If you were sourcing the stock yourself,I would have to see the purchase invoices.I don’t think you can have set figures per vehicle,what we have done is base it on the quality of the deal.So if a deal goes wrong,duff swapper,big warranty claim,huge prep bill and there is no profit,the investor gets e.g.£50.However with good deals attracting resaleable swappers,prime finance and a very good profit margin the investor should be able to earn up to £400.( but they are not many of them).So with a straight £1000 mark up less your  vat less prep and delivery costs etc as you will net little so I would suggest £100- £125.

If you have a good business which has been established for 10 years you may need to explain to potential investors why you have a poor credit rating.Non motor trade investors taking the AD route would probably expect their investment to be ‘belt and braces’ fully secured.I thought £20k was being used as an example,if this is all that you require,I would be suspicious.If it is a well established good business £20k cannot improve it very much.Sorry to sound like someone from Dragens Den.