Transportation & Logisitcs
The transport industry is highly competitive, challenging and demanding. It’s required to keep pace with constantly changing financial, commercial, technological, regulatory and environmental concerns.
Road transport accounts for over 35% of all domestic freight. Road transport is the critical link in the complex chain that moves goods from terminals and ports to warehouses and retail outlets, as well as from mining companies, primary producers and manufacturers to production facilities, warehouses, markets and to ports and terminals. Road transport is an industry in which capital investment is extremely high (yet finance is very tight). Fuel, running costs, statutory costs and wages are ever increasing and as a whole, industry returns are quite low.
The growth of the ‘sharing economy’ has seen the rise of individual competitors such as Uber enter the taxi market, but this is not likely to effect bulk transportation of goods.
The sector is quite diverse, including:
Road, water & air freight
Warehousing and cold storage
Postal & courier services
What we do for this industry
Our road transport clients range from one truck owner/drivers to large fleet operators.
Not only do we deal with the usual small business compliance matters of GST assistance and BAS preparation, preparation of financial statements and end of year tax returns, we also assist with :
Preparation of Cash Flow Forecasts and Profit Projections
Yearly Tax Planning Strategies
Personal Risk Insurances including Income Protection and Life Insurance
Bookkeeping and Payroll Services
Business establishment and structure advice incorporating asset protection and tax minimisation considerations.
Self Managed Superannuation Fund Administration and Advice
Business Succession Planning and Achieving optimum results on business sales
Human Resources Management
Personal Financial Planning and Wealth Creation Strategies
Preparation of Business Plans
Financial Statement Analysis, Industry Benchmarking and KPI Analysis
Finance Applications and Yearly Bank Reviews
Challenges & Opportunities
Road transport operators face a myriad of issues spanning from fluctuating fuel prices and fuel excise, urban area traffic congestion, high vehicle registration and insurance costs, deadline pressures and driver fatigue.
To ensure safety, there are also high equipment maintenance costs for all on road heavy equipment which must meet the guidelines of accreditation schemes such the National Heavy Vehicle Industry Accreditation Scheme and Truck Safe. These schemes also influence other aspects of their operations and compliance which can be costly.
In such a regulated industry with a relatively low profit margin, it’s extremely important that the operator has a clear understanding of their costs.
Case study 1: Protecting personal assets
The risky nature of the transport industry was a major concern to a husband and wife team who owned a transport company. They wanted protection of their personal assets from any issues with their business (e.g. someone lodging legal action against their trading entity).
There were a number of options available to the clients that were discussed. After looking at what would work best for them, they continued with their existing structure, with the husband as the sole director of the company, but moved any personal assets solely into the wife’s name. This removed any access to their personal assets through the company if a personal claim was made. Following this, in order to further minimise the risk of access to assets available within the company in the event of such a claim, a second company was established which purchased the plant and equipment for the business. A hire charge (based on reasonable commercial rates) was then charged by the asset company to the operating entity for the use of these assets. The couple were considering purchasing their own land to run their business from and this was set up through a Self Managed Super Fund and leased to the operating company.
We were able to provide these changes to our client to achieve their goal of protecting their assets through appropriate business structuring which also produced some beneficial tax outcomes (not only income tax, but other taxes such as Transfer Duty, etc.). Proper consideration and forecasting when a business first starts can enable the best structure to offer asset protection and potential tax minimisation benefits.
Case study 2: Financial options to expand fleet
A new client wanted to expand their fleet and were keen to get the best financing options. Due to the high rates of tax depreciation allowed on trucks, plant and equipment, aligning the carrying value of their assets on the business balance sheet to the tax depreciation schedule was significantly less than the actual value of the assets. This had implications for our clients where financiers may view the net position of the business as being way below its actual value.
When preparing financial statements for clients with large depreciable asset holdings, we often use a two pronged approach when it comes to depreciation. We applied this methodology to our client by using accounting depreciation rates (which is more in-tune with the actual effective life of the asset) to calculate the depreciation for the financial statements preparation and use the tax depreciation rates (as per the ATO’s guidelines) for the income tax returns of the entities. Our depreciation schedules showed both accounting and tax depreciation claims, profits on sales of assets (where applicable) and written down values of the assets.
The financial statements based on the accounting depreciation rates reflect a more realistic financial position of the client which they used to achieve good financing rates.