Business surgery: Vehicle Accessories

Company name: Vehicle Accessories

Sector: Auto industry

Number of staff: 15

Company owners: Lee Fletcher

Key customers: Imperial Commercials, Temple Gate, Crystal Clear, Oven Gleamers

Website: www.vehicle-accessories.net

Company overview

Vehicle Accessories Limited was first established in 2003 as Mobile Carkit Solutions. The company operates nationwide and carries out work for individual customers, as well as large corporate companies.

It supplies, installs and services automotive accessories, including hands free car kits, fleet trackers, parking sensors, car audio, sat navs, speed warning devices, and reversing cameras. Additional services launched in 2013, such as the installation of ply lining, tow bars, steps, lighting and raised floors have made the company popular, not just with businesses, but also with people looking to convert commercial vans into campers.

The team continually invest time in seeking out the latest product innovations to recommend to customers.

In 2015 they opened a dedicated Installation Centre in Brislington where work can be completed while customers wait.

Their installation experts pride themselves on leaving your vehicle looking as good as new – with no unsightly wires or holes in your interior- and show you how to operate, maintain and manage your new equipment. 

Placing as much value on the customer experience as the quality of the work, the office team assign a dedicated contact to each customer to provide a consistent point of contact and regular updates.

The Challenge

‘From the start vehicle accessories has always reinvested profits back into the company to aid the continued growth and further expansion. Our aim is to continue growing adding new products to our already large portfolio of services we offer locally and nationally. Should we continue to grow organically by reinvesting profits, or should we consider some additional investment?’

FEEDBACK

Matt Penneycard, head, Downing Ventures

This is a classic issue for many growing businesses. My advice is to get the key stakeholders together and come to a decision about what the ultimate objective is for the company, under their ownership. 

This question will make a lot more sense in that context. For example, if the current shareholder(s) want to realise a capital gain through a sale of the business, a growth capital investment may well make sense – better to own a smaller percentage of something that is resourced to achieve the ultimate objective, than 100% of something that doesn’t work out. However, if the owners are more interested in a “lifestyle business”, with attractive annual dividends, perhaps the right option is not to take on external investment.

The bottom line: define as accurately as possible what your ultimate goal is, put a timeline to that, and then design the plan that gets you there, including the funding requirements.

Steve Ryland, head of accountancy at Create Group        

As well as the traditional bank loan and overdraft, there are various funding options available, many on the net; crowd funding, venture capital, grant funding. Also, family and friends.

All external investment will have a cost. Interest charges, a share of profits or maybe control of your company. Internal investment will make a slower pace of expansion, but lower costs or risk. But you don’t want to miss an opportunity either. It’s a balance of cash and attitude to risks.

You’ll need to decide:

• will the income that will be generated cover the borrowing charges and repayment?
• what is the risk that the investment won’t generate the extra cash needed, when you need it?

Draw-up a business plan. This will be needed for a potential funder as your investment proposal. It will also help you make your decision.

1) Up-Front Capital Costs:

Identify: the up-front costs for the project; any additional running costs; this will indicate the level of funding required. Identify what you are willing to give for this funding: profit share, some control or interest for borrowing. This will help identify who your potential funder is and the likely cost of that funding and repayment terms.

2) Future Cashflow:

Estimate the likely income and costs (including borrowing charges) and profile them on a monthly basis over the next few years. I recommend you do 3 different versions of this to help factor in the risks associated with your assumptions. What does it look like now? Does it look like an investment you want to make?

Philip Tellwright, finance specialist at Business West

What a great question!

The limiting factor for most businesses is the rate at which the market will allow them to expand.  The key here is to understand the return on investment which is available from new products.  If you have capital available within the business to invest in new products, then provided the return is acceptable, I’d first utilise your own resources. 

If cashflow is limited you will need to consider borrowing – here of course the return from the product sales will be reduced by the cost of the borrowing.  Borrowing might also necessitate providing “security” acceptable to your lender.  This might be a limiting factor. 

If the borrowing options are limited then you might consider investment, but it will come down to a comparison of the return available from the investment in the enhanced product range and the cost of the funding.  Equity investment is usually very expensive (APR “equivalent” would easily be in excess of 20 per cent) which usually limits its attraction and viability to high margin and fast growth businesses.