Do you want to improve the prospects for your business?
- Could your brewery do with more cash?
- Do you have too much capital tied up in fixed assests?
- Is borrowing from the bank too difficult or too expensive?
The sale and rent back of existing and unencumbered containers to Close Brewery Rentals makes a lot of sense. Talk to us about the options available and how we can help your brewery.
Every business is different but here is an example of what could be possible, and
an explanation of why sale and rent back makes financial sense!
A brewery has 1,000 casks, average age 10 years, which have a book value of £5,000. It is agreed to sell and rent back these casks to CBR for £35 each.
Cash payment of
£35,000
Profit on sale generated
£30,000
Rentals payabale in first 5 years
£35,400
Corporation tax saved @22%
£7,790 (2009/10 tax rate for SME's)
Net cash cost
£27,610
Rentals payable in yrs 6 to 10
£17,400
Corporation tax saved @22%
£4,090
Net cash cost
£13,310
Total 10 year cost of renting
£40,920
We have to assume the £35,000 generated is put to good use.
This is typically measured by reference to a brewery's existing return
on capital, alternatively the level of return a brewery would look to
make by investing funds back into the business. Typical target returns
are between 10% and 15% p.a.
At its simplest level the funds could be used for any or all of the following examples
- Reducing debt levels saving interest and charges;
- Early settlement of creditors obtaining supplier discounts;
- Better purchasing obtaining supplier discounts;
- More capacity to brew, generating greater sales opportunities;
- Increasing brewery efficiencies by buying new/better equipment;
To reflect the impact of the benefit of releasing these funds the normal method is to "discount" the future rental payments using the % return the funds may be expected to generate. This gives a "net present value" of the rentals to compare to the cash generated.
Listed below is the true 10 year cost of the rental against a range of discounts:
5%
£34,730
10%
£29,810
15%
£24,930
Therefore it may be more advantageous to rent because the present value of the future rentals to be paid is likely to be materially less than the cash received at the outset.
If you wish to discuss this topic in more detail,
or obtain a quotation for your own container stock,
please call 01425 485421.