Equipment hire business

Hi everyone,

Just hoping to seek any advice on setting up a small business.

I’ve always been interested in creating a second income stream outside of the full time job (50-60 hours a week)

My wife has recently stopped working to look after our first child, so this has motivated me further to create a second income but without much spare time.

Being in the mechanical/electrical repair industry I’ve recently tried renting out some garden equipment online with some success, so I have decided to commit to this further as I can see it becoming a reasonable income stream with a passive component to it, service and repairs can be carried out in spare time and I can often deal with people after work hours from home.

My plan is to have a small fleet of petrol
And diesel garden and earthmoving equipment.

I would like some advice on critical steps in setting up, structuring and maintaining this business.

I have registered a business name, Power Hire
I have an existing sole trader ABN
At this stage I am not interested in pulling any funds from the business, I will have a few start up expenses and I would like to reinvest all profits into more equipment.

Is a existing inactive bank account suitable to use for this or do I need to open a new one in the business name?

Could anyone here recommend what insurances I will require? Public Liabilty at a minimum?

Anything else I need to think of?

Currently I have a Rotary Hoe/Tiller, Post Hole Digger and I am rebuilding a Dingo mini-loader which will be complete in a couple of weeks.

In the future I would be interested in adding a car licence tipper truck and a mini excavator.

@Paul@PFI any further advice on this?

 

Have a chat with an insurance broker - normal car insurance probably won't cut the mustard for a hire vehicle (rego/CTP will probably be worse too). Possibly a whole range of other insurance issues too.

Is a sole-trader the way to go? You may need to speak with a solicitor/accountant about structure and tax (eg ability to split income with Mrs).

Repair costs are usually quite high (sure you're able to DIY but you have to cover these costs), don't forget about consumables - points/blades/teeth etc?

Plant hire equipment factors in a quick return on investment ie a drill will last only x weeks of hire to pay out the costs, any longer is profit.

 

For a lot of small equipment hire businesses , the bread and butter was always in the trailers, 6x4,7x5 and caged ones ,car trailers and furniture trailers , you slowly build them yourself,get them certified and registered and see what goes out the most , and keep on building,you can repair them yourself.
Most of them go out Fridays and Saturdays and come back Sundays or Mondays
Its not that hard to undercut the big boys, especially if you build and repair them yourself.
Find out what your customers want and slowly build up the business.
A lot of tradies like to hire rather that buy, dont bother with the small stuff ,drills ,angle grinders and circular saws but the more expensive stuff that they dont want to buy.
You can spends bucketloads of money on small tools that might sit on the shelf for 6 months.
Wait for them to come to you , buy it and then rent it back to them, especially things like compactors etc
Things like dingoes that can be transported on car trailers are a good idea.
Bobcats are OK ?? but you still need transport to get them to the job.

 

Forget the sole trader thing or you will be losing your house!

The way to go would be a limited liability company. Shares of the company possibly owned by another company with the shares of that company owned by a discretionary trust.

This is the trading company dealing with the customers and entering into contracts with them. Any contractual disputes this is the legal person that will be sued.

Another company, possibly as trustee, should own the equipment and lease it to the trading entity. The trading entity will not lose the equipment if it is sued. The asset company can take a charge over the trading company as security for the lease adding further protection.

Funding needs to be considered too. Start up money should be loaned to each entity. This should be under written loan agreement and the choice of the lender should be carefully considered. Ideally you would lend to another trust, with company trustee, which would then lend to the trading and asset entities. This is to avoid you being in a court case if the company is liquidated and you need to sue the company to get your loaned money back.

If you are not serious first up consider a trading company with shares owned by a DT and slowly add to it as you expand.

 

I was talking to a manager of a big storage/equipment hire company. He said equipment hire was good business but storage hire was even bigger!

 

Terry you have just blown my mind and made it obvious I have a lot to learn.
I hadn’t considered the legal implications, outside of public liability and a lease agreement, let alone the possibility of our portfolio being effected.

What you have described sounds expensive, I would estimate to make 5k-10k in the first year and recycle profits slowly building the business until I reach my limit, there’s only so many customers and machines I will be able to handle on top of the full time job.

Is the ideal structure you have described above practical in this application?

Security of our assets is priority and I would prefer to do it safely or not at all.

 

Couldn’t agree more, I recently had a conversation with a owner of a large civil company reducing his asset base and investing into commercial storage units with small office space attached.
Lots of small/online businesses looking for storage units they can work from with good yields.
Need some money behind you though.

 

At the very least I would set up a company to limit liability. But carefully plan who will be the director as sometimes the director goes down with the ship. This may influence how you own personal assets in the future too.

 

If your mech/elec look into refrigerated containers also. Hire out for functions or hospitality industry

 

Big beer fridges for site?

 

Can you give an example of a suitable director?
I assume it would be someone who can’t go down with the ship, a relative with no assets or a child?

 

Many good options, I’ll be working out of a double garage and driveway for the short term so will be restricted to smaller items.

I work for a CAT dealer and see myself with a fleet of machines over anything else as that’s the industry I’m
In and the contacts I have.

Many customers I work for are making upward of 1k per day per machine while I am the one doing the work to keep them running and earning money.

 

Spouse A or Spouse B. Usually not both.
You probably won't be able to get someone else in the role as it is a serious commitment. Also have to consider the issue of control

 

@JesseT doesn't have to be that expensive to set up but well worth it in the long run. Say you get to north of $100k in equipment down the line, you want that protected!!

We do a similar thing (not in your field), we have two company's, one company owns all our office equipment and software licenses the other company is the "trading company" that deals with the clients and takes on the jobs etc. The trading company leases the software and equipment from the other company.

This way, if a major client goes south on us and takes us down our assets are protected, only the trading company is affected. We can then start a new company (potentially) and still own all the equipment and software to carry on trading.

So, at the very least, you just need to set up two company's and make sure your equipment is purchased through your second company B and your trading as such is through your first company A then company A hires equipment from company B to on-hire to your clients.

Doesn't have to be complicated, you can just pay Co B from co A once a year, say a fixed sum for "equipment hire services".

Can't remember now but I don't think it's that expensive to register a company? Definately pays to do it right at the outset even if you don;t currently think you'll be making Trump money. Much harder (and expensive) to re-structure down the line if things become successful.

And open a separate business account for each of the company's, much easier to manage and track for the sake of $10 a month each. We used ComBank, (not necessarily plugging them) but I like that I can see all our business and Trust accounts from the same login dash board even through they are separate ABN's and entities. I'm sure other banks may be similar?

 

But there's still a lot of factors at play with that number if that's an accurate number to begin with.
Wet hire or dry hire
Fuel
Overheads
Servicing! Cat are good at charging for their space age servicing
Repairs! Operators aren't delicate princesses!

 

My wife actually has a company, it’s a yoga and massage studio and she is the director.

If i opened a company in which I was the director, rented machines from the yoga company which owns them, and then sub-let them to clients, would this be the correct structure?

This may work better passing on all profits to her company as she is the lower income earner.

There are 2 properties in my name and 1 property which we are 50% tenants in common.

 

What are you trying to achieve?

 

I’m trying to achieve Additional income

I want the structure to be tax efficent and not put our property portfolio at any risk.

Building our Property portfolio is on hold as borrowing is not an option, i would like to focus on debt reduction and increasing cashflow.

I have always had an interest in business and see this as an additional income with the potential to grow into something bigger down the track.

 

Could you charge more for the use of the machines? By setting up a second company you are diverting income from company A to company B.
If the goal is to divert income to the lower taxpayer this could be done with wages, and/or shares owned by a discretionary trust

 

The company would be seperate to your investment properties. Isnt that the idea of a company
Couldn't you do a trust for kids which own the machines. They are then hired to plant hire Company then hired to customers?