What to know before you buy a trucking business
Buying a Trucking Business Can Be Involved
When buying a transport business there are a number of business models that you may be buying into. The model may vary from just buying a truck, buying a truck and contracts, or perhaps even a franchise. A common example here may be a NZ Courier franchise.
Different business models may require more from you than others which is why it is important to review all of this with your lawyer before you commit to anything.. Franchises for example may bind you into other commitments that you may not be aware you were making i.e. contributions to marketing costs.
It is especially important to find a lawyer and an accountant who deal with these types of business transactions regularly. The sale and purchase of a trucking business differs from a regular business sale. They’re not very common transactions so it is important to find a lawyer who specifically handles these types of transactions.
Below is a list of things that whilst not exhaustive, provides an idea of what potential purchasers of a trucking business should be considering.
Unless you are in the business of valuation, how do you know that a listed business is worth the listed price? Valuing a trucking business is especially different to valuing say a cafe or motel. From our experience it pays to have an appraisal as part of your due diligence. It is important to obtain an appraisal from someone who is knowledgeable in that industry.
New Zealand Transport Agency Requirements
It is important to ensure that the trucks are all up to date with on road compliance issues as per current rules and regulations. In most cases this includes holding an appropriate transport service license.
Whether you trade as an individual or a company, you must hold the appropriate transport service license. You must have a transport service license to operate a goods service, passenger service, vehicle recovery service or rental service. If you are providing a goods service you will need a transport service license if the laden weight of the vehicle is 6000 kg or more.
The license is important, as the penalty for driving without such a license may be up to $10,000. If the contract does not contemplate this license, the purchase price might be adjusted to reflect this cost to you. It takes a minimum of six weeks from the passing of your Transport Service License until you get it so timing of the transaction will be another important factor.
Vehicles must meet high safety standards before you can operate them in a licensed transport service. These include registration and annual licensing requirements and routine certificate of fitness inspections. It is important to ensure that all these are up to date on the vehicle. If they are not you will need to factor these into the cost of the transaction.
It’s worth noting that there are different licenses for different configurations of vehicles. For example you need a dangerous goods license to cart certain products. Due diligence needs to be performed to ensure that the vehicle you are purchasing complies with the appropriate license requirements.
Road User Charges
Check that the current odometer/hubometer reading does not exceed RUC. If it does, then factor the cost of the unpaid RUC fees into the sale price.
Do They Have A Safe Driving Policy?
Check to see if the current owners have a safe driving policy. Any responsible business will have a driving policy and should record every ding or incident that any of the vehicles have been involved in. A good well run business should provide all this information which should paint a picture of the vehicles history.
Check the log book, does the mileage claimed match what is on the odometer?
Restraint Of Trade
It is important that any agreement for sale and purchase of a trucking business contain the appropriate restraint of trade provisions. For most business sales a 20km restraint of trade radius is standard, however, due to the nature of trucking, a far larger radius should be used.
This was illustrated in a recent employment relations authority decision which enforced restraints entered into by a senior management employee who left and was engaged by a rival company. The employee had agreed to a 12 month restriction on working for a competing company within 150km radius. It was upheld that the employee could only work 150km outside the restraint area on the facts of the particular case.
If you are buying, include larger radius so that the vendor is restrained from setting up a new rival business within the same territory.
Registered Securities Against The Vehicles
Make sure there is no collateral registered against the vehicle on the Personal Property and Securities Register. If there are, these security interests will need to be removed prior to settlement.
Condition of the Vehicle
It always pays to have the vehicle looked at by a qualified mechanic. The truck may be on its way out. If you do find concerns, you may request that the vendor give warranties as to the state of the vehicles. This may provide a safety buffer for unexpected repair cost in your first year.
Assignment of Contracts
Particularly important is where the work will come from when you purchase the truck. If an important part of your purchase is the contracts that you will be taking over then it is important that these are checked.
Does the majority of, if not all of your work, rely on these contracts you are purchasing? If so, how safe is the contract? Can they cancel it at a moment’s notice, how secure are they? You need to check the contract to see if it can be assigned to you. It is important that your lawyer check these.
Many transport business models are part of a national franchise. You need to be aware that if you buy a trucking or other transport business which is part of a franchise then the franchisor is going to have to consent to the sale and there may be additional fees involved for the sale including training fees, franchisor consent fees and a portion of the sale price may even be payable to the franchisor. Every franchise model is different and is governed by their franchise agreement. You should not contemplate buying a franchise without consulting your lawyer..
There are quite a number of considerations when purchasing a transportation business that go beyond the scope of a regular sale and purchase. It is important if you are considering buying or selling a transport business that you consult with the right people.
For further advice before buying a trucking business contact Nick Robertson, Harman Lawyers
on 03 962 0202 or email email@example.com
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