I want to do a free advertorial for a good friend who just started his own transport company with one mini-bus fitted with a hydraulic ramp specially to transport mobility challenged passengers. His mini-bus can take up to 2 persons on wheelchair, fully secured and safely. However, instead of doing a plain sales talk, since this blog is all about financial planning, I thought we can use this opportunity to analyse his business together.
He is not aware that I am doing so 🙂
My friend’s name is Richard. His company is called “Go Forth”. Below is his name card:
He has a carousell site that you can learn more and to book his service.
I thought his rates are pretty competitive:
- $25 <5km
- $40 >5km <25km
- $45 >25km
A few months, he bought a new mini-bus to start his own business. Brave guy I must admit. The transportation business is a very competitive one. Nowadays, anyone who has a driving license and willing to work long hours can be his competitor overnight. He has to deal with not only small transport sole proprietor businesses, but also big players like Comfort Delgro, Grab, Uber etc. Tough competition man!
He enters this business with his eyes wide open. He knows the threats but he has his own strengths to bring to this business to differentiate himself.
Richard is a great guy – kind, helpful, patient, smart and carries a lot of optimism in his outlook of life. His glass is always half full. These strengths literally booze out of him. Don’t believe me, just go ahead and give him a call and book his service. You will feel it the moment you interact with him.
I think he is smart to try to differentiate himself by having the means to cater to a niche market, the mobility challenged passengers instead of just the mass market.
However, it doesn’t come free. The modification would have cost easily $20-25,000 and assuming the new mini bus with COE cost $115,000 (source: sgcarmart.com), the initial investment is in order of S$ 135-140,000. He probably took a loan of 70% for 7 years to fund it – the interest rate is ~ 2.5% per year. And you know how the finance companies calculate it … the annual instalment payment will be $16,450. For easy calculation, we assume interest payment is evenly spread out over the 7 years, i.e. $2,450
Besides the initial investment, he has operating cost to manage. If we assume that his min-bus runs 5,000 km a month or 60,000 km a year, diesel consumption is ~ 12 km/litre, the amount of diesel consumes a year is 5000 litres. Based on diesel price of $ 1.60/litre, just fuel alone, it will cost him $8,000
Besides that, he has to buy insurance, assuming $2,000 a year and he needs to maintain his car – battery, tyres, washing, servicing for car and the ramp, say all in $4,000 a year.
In Singapore, it is not unreasonable to assume that the lifespan of this mini-bus is 10 years, hence annual depreciation is $14,000.
Not forgetting that he will have to pay corporate tax of 20% for his income.
And assuming that he is looking for a return of 5% (i.e. discount rate of 5%), using NPV calculation, just to get a slight positive NPV, he will need to earn a revenue of $83,000 a year, $6,900 a month, $266 a day (assume 26 days month, Sunday off). He will need to make 7 trips a day based on an average of $40 per trip to meet that. And that will mean a 7-hour workday, 6 days a week routine.
That’s how tough it is.
So what are the upsides? He probably gain more work-life balance. He can make choices on how he spends his time – with his children, his wife, his business or his hobbies unlike when we are in the corporate world. He can probably spend more time with his children if he wants. He probably get more satisfaction that he is now running his own business and not working at the desk to rush out reports, meet datelines, get scolded by seniors/bosses, be involved in office politics etc.
Like all things, there are always good and not so good sides. They come together.
How true that there’s no free lunch in the world.
I wish him well on his business and safe on the roads. Given his drive and personality, I think he will do well. All the best Richard!