Should You Hire Vs. Buy A Van For Marquee Business?

  Posted by: Chief Editor, Selmore - Marquee Hire, on July 25, 2017 10:28 pm Leave your thoughts
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Hire Vs Buy Marquee Hire Van

For start-ups or existing marquee hire contractors, a vehicle is a major budget expense: Do you hire vs. buy a van?

There are somethings which you simply cannot get around. Copious amounts of transport and travel for a national, regional or even local marquee hire business for example is unavoidable.

The cost also likewise.

As with anything within your business planning, you must assess your options for investment against budgetary feasibility.

With the issue of vehicle acquisition, you either have the capital to buy or not. In the case of a marquee hire company, your van ought to be roadworthy and able to accommodate the packed structures, as well as your rigging crew, comfortably.

There are many multi-purpose, tradesman vans on the market - both used and new which are ideal for purchase, but the question remains, "Should you Hire or Buy A Van for Your Marquee Hire Business?"

What types of hire arrangements are available on vans for marquee hire companies?

To be sure that you really are talking hire and comparing like-for-like financial arrangements, it is key to begin with definitions:

  • Van Hire: typically micro-term lease periods ranging from days to weeks
  • Lease: longer term hire arrangements, usually between 2 years to 4 years
  • Hire Purchase (HP): this is neither hire nor buy, but actually credit (debt)

Definitively, a hire arrangement involves the selection, securing, delivery, use and return of an asset at the end of the pre-planned duration of hire. This of course applies to the three listed hire options above.

Where they differ one from another is really in the payment arrangement which underpin the arrangements as well as the duration (with the exception of hire purchase).

How is a 'hire purchase' different?

Hire purchase arrangements are credit (debt) based contracts, which much like a loan or mortgage, works on the basis of usury. The lender loans the item to the borrow on the basis of a planned repayment schedule. Repayments are returned with the added margin of profit included for the benefit sake of the lender, known as interest.

The percentage of interest charged is dependant upon the financial risk management calculations of the lender, the cost of available commercial credit offered to the lender for resourcing their own business, the agreed duration of hire, amongst other details.

The issue or rather danger here for the borrower is 'leveraging'. This means the signing on of long-term debt as a business/person which is set-against 'yet to be materialised' business profits which are expected by the borrower.

Without certainty of whether or not these expected business profits will actually become income, owners who choose to gamble are effectively handing away sovereign ownership of their future business stability to 3rd party financiers, who will forcibly seize upon business assets, by law, should there be persistent defaults on the agreements.

This can leave a business bankrupted and without remedy.

What are the key financial and functional comparisons when considering hiring vs. buying a van?

The budgetary handling of hiring vs. buying a van is very different in business accounting. Also, the conditions surrounding the use of the asset and service levels under which it is given also vary.

These factors will each have a knock on effect on the business's overall ability to deliver marquee hire service quality.

  • Availability
    • Hire: only when the vehicle is not being hired by other service users
    • Buy: so long as maintained as road worthy, the vehicle will be continually available for use
  • Cost
    • Hire: recurring revenue cost of hire for every period of operational activity
      • incorporates maintenance costs, road tax and insurance (not fuel)
    • Buy: one-off capital cost only, but all associated running costs additional - inc. fuel, of course
  • Ownership
    • Hire: owned by hire company
    • Buy: owned by buyer
  • Customisation
    • Hire: choose between a fleet of vehicles, each with built-in differences
    • Buy: can customise one single vehicle without restriction, to suit needs
  • Servicing
    • Hire: hire company is responsible for all cleaning, maintenance and servicing costs
    • Buy: buyer carries out all vehicular maintenance
  • Penalties
    • Hire: where the hire terms are broken, e.g. unofficial extension, there will be penalty fee incurred by hirer
    • Buy: owner owns the vehicle outright and therefore incurs no hire service penalties

With so many factors involved, how do I make a confident decision?

Any investment decision made would need you to take into account the value of your labour and that your future business earnings are not yours, until they're yours. These earnings ought not to be banked against services or goods before the time of receipt if you want to avoid being found uncovered.

Availing yourself of the capital to buy in most cases will take time to accumulate - whereas in the interim a hire vehicle could be used in order to continue trade. Although hire vs. buy is a more long-term costly agreement, hiring does provide the immediacy of starting-up now, with minimal investment needed. A good stop-gap before buying your own.

As soon as the capital to invest in a vehicle (outright) is available, it would be worth converting your vehicle arrangement from the temporary measure of vehicle hire, which poses short-term financial risk in unauthorised extensions, for example, for buying a van.

With a van purchase, although depreciation depresses the marketable value of an asset the moment it changes hands, the price achieved of resale after (x) years of use will recoup some of the original capital spent, to return back to the owner via the re-sale.

With the whole matter weighed up against what you have to hand, the decision should pretty much make itself. You should find that you can simply either afford to buy the van, or not.

For further information on financial business planning, visit our category: Marquee Hire Business Planning.

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