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Financial advice to a business customer on a new range of products.

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Introduction

Financial advice to a business customer on a new range of products In this section I have been asked to give financial advice to a business customer on them either expanding or buying a new range of products to ensure good customer services. Mr Smith started his hire car business fifteen years ago and since then he has been making a steady profit. Through these years John has only changed his fleet of 20 cars twice. With him only making a steady profit he thinks he is not making as much due to his run down cars and is now looking to either buy or lease a new fleet of 20 cars. John Smith is 40 years old and is looking to retire in 15 years to do this john has to try and make as much profit as he can so that this will be possible. Smith Cars is a limited company, which is owned by john and his son Peter which means that Smith cars can raise extra capital on the stock market. John leases his cars out at a price of �25 a day and �5 extra for over night. The business is situated in Leeds, which is very good for business due to the lack of car hire firms in Leeds. ...read more.

Middle

rentals * Payments take into account the vehicles future residual value, so John would not have to repay the entire capital cost, giving John reduced payments * Flexible maintenance packages which can include breakdown cover and relief vehicles * Vehicles are accounted for on an off balance sheet basis * The administration and management burden is borne by HSBC * Rentals are allowable as a business expense Contract Purposes A hire purchase agreement where HSBC guarantee the resale value at the end of the term for a known, fixed amount. In addition, a full, fixed cost maintenance agreement can be included. John would get legal title, and therefore ownership of the vehicles, when all payments due under the agreement have been made. The advantages of this would be: * Assists cash flow and needs little capital investment * Costs are predictable and risk free allowing for easy budgeting * Payments take into account the vehicles future residual value, so John would not have to repay the entire capital cost, giving John reduced payments * Flexible maintenance packages which can include breakdown cover and relief vehicles * The administration and management burden is borne by HSBC * Writing down allowances: 25% of the capital cost of the cars can be offset against tax each year up to a maximum of �3,000 ...read more.

Conclusion

With John raising �39,300 a year HSBC have produced a low monthly cost for all 20 cars and have accepted all 20 of Johns old cars as the first 5 monthly payments which means John will not have to pay anything for 5 months. HSBC are charging John �1700 a month for all 20 cars. This has worked out very cheap because HSBC have planned around John's finances. They have given John a 6 years lease period and after the 5years John can either pay off the rest of the debt owed or receive a new fleet of cars and carry on the way he was doing. This is another profit and loss account to see Johns company's finances after the lease of the new cars this is estimation based on last year's account: � � Sales 80,000 Opening stock (jan 2000) 12,300 Purchases 15,000 27,300 Less closing stock 10,000 Cost of sales 17,300 Gross profit 62,700 Less overheads Administration 6,200 Wages 12,000 Rent paid 3,750 Telephone 500 Interest Paid 750 Travel expenses 200 Fleet Lease 11,900 Based on 5 months no fee 35,300 Net Profit 27,400 Given all this Johns profit margin should increase on the basis of the new fleet of cars will attract more custom. ...read more.

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