Tasty Fresh owner Colin Lear has a robust business plan. He buys a van every fortnight to ensure strong sales and low costs. He does it through truck finance – a strategy that's helped the company go from strength to strength.
How to finance a business
Colin Lear purchases a new $80,000 van for his food truck business every two weeks.
He is continually renewing the fleet of his Tasty Fresh, opens in new window business to ensure strong sales and lower maintenance costs.
“If you’ve got a nice, new, shiny van that looks right, you’ll actually have better sales from it,” he says. All up, Lear owns about $10 million worth of trucks, which he funds with a vehicle and equipment loan from NAB.
Finance versus buying a van for business use
If you’re seeking tips on how to expand your business using vehicle finance rather than your working capital, Tasty Fresh is a good case study.
The company operates as a mobile canteen for workplaces. The vans pull up in the car park of a business and sell lunch and other meals to workers before moving on to another nearby business.
Nightly, it makes all of its own sandwiches, sushi, salads and cakes in its production facilities to restock its vans each morning. Lear says he likes to make sure that the customers on the last stop have the same variety of choice as those on the first.
The business has grown significantly since it was founded in 1979, with 140 trucks in Melbourne, Sydney and Perth serving 28,000 customers a day and turning over about $40 million a year.
The average cost of each truck is $80,000 – about $30,000 for the basic van and $50,000 for the catering fitout and POS system (point of sale software) that allows it to operate as a mobile food outlet.
The company has the added complexity of being a manufacturer as well as a mobile retailer, and the proprietary software the company has developed over the years is vital to the operation of the business. It allows reconciliation of stock and cash and forecasts product numbers for each van for the next day.
Australian businesses hold on to their vehicles for much longer then businesses overseas – sometimes twice as long – according to research by truck and machinery auctioneer Slattery.
The truck fleet in Australia has an average age of 13.8 years, compared with 6.7 years in the US and 6.4 years in France. In the UK it's 7.8 years and in Canada 9.2 years.
This means the fleet costs more in maintenance and is less fuel-efficient than new ones.
An ageing fleet isn’t a problem for Tasty Fresh. The company can afford to spend $80,000 on a new van every two weeks because it has a $5 million equipment finance facility with NAB.
Repayments are structured to suit the business’s cash flow needs. On average a new truck takes around three months to generate enough sales to break even so the commencement of monthly repayments are delayed accordingly.
Tasty Fresh takes out a seven-year lease for each van, repaying them at around $1,200 per month, although the vans can be on the road for as long as 10 or 12 years.
“It works really well for us that we can finance them over that seven-year period and then it becomes something that just gets expensed into a van. You can pretty much say, ‘This is how much it’s costing us for a van’,” Lear says.
“I don’t really consider our fleet finance as debt, I prefer to consider it as the rental on our retail outlets.”
Using vehicle and equipment finance for the fleet frees up funds in the business for other investments. When Tasty Fresh sets up in a new state, it needs to commit to a serious investment in a local food production facility before the commencement of operations.
“With the production facility, you need to invest around $2 million before your first van rolls out the door. We like to do that with cash rather than by going into debt and it frees up your cash to do those types of things as well,” Lear explains.
He describes the last three to five years of a van’s working life after the loan has been paid off as “a bit of a free kick” because of the savings on repayments.
Nonetheless, he is careful to ensure that the fleet is continually being renewed.
Many other food truck operators are held back because they're reluctant to renew their vans, thinking they'll maximise the returns on each van by running them for as long as possible.
“It costs them a fortune in maintenance and no doubt it costs them heaps in lost sales,” Lear says. He looks upon new vans as akin to a refurbishment of traditional bricks and mortar fast food outlets, which he says typically get a 20 to 30 per cent increase in sales after the refurb.
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The information contained in this article is correct as of July 2018 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.