Company Car Ownership: Costs to Consider
Your business is growing and you’re finding that you need some extra assets to facilitate and maintain its expansion. Company vehicles are a not only a great way to deal with an expanding workload, but they also function as a perk that could attract the best possible potential new hires that may be needed to keep your enterprise growing.
There are a range of important factors and costs to consider when purchasing a company vehicle. Should you lease or buy? What’s the deal with insurance and liability? Are there any tax advantages or disadvantages? What are the costs of branding the vehicle? Below we’ll touch on all these questions, hopefully clearing up some of the confusion that comes with making this important decision.
To lease or to buy?
When considering getting a company car for your growing business, the question of leasing versus buying inevitably comes up. There are advantages and disadvantages to both options, and the best choice will ultimately depend on how you intend to use your vehicle and for how long. If you anticipate only using the vehicle for around 3 years or less, then leasing will be the better option, as it lessens your financial commitment and up-front costs, and from a cash-flow standpoint will be significantly less disruptive than purchasing a vehicle outright. On the other hand, if you plan on keeping the vehicle for more than 5 years, and your budget permits doing so, buying will probably be the better option.
Leasing has a range of advantages. Monthly lease payments are a tax-deductible business expense. It’s also possible to enter into a lease in which regular maintenance or routine repairs are covered, reducing costs in both money and time in upkeep of the vehicle. Another plus is the easy turnover process. When you’re done you simply return the vehicle once the lease is over.
Weighing the disadvantages are also important. If you’re going to lease a vehicle, you’re getting what you pay for – typically, leased vehicles can’t be customized or retrofitted to suit your specific needs. All leases are different, but most have mileage limitations. In these cases, if you surprise your mileage limit you could be charged additional fees per mile over the limitations.
When it comes to buying the vehicle, the advantages are mostly linked to the forms of freedom that come with ownership of an asset. You can customize it all you like, and you aren’t limited in terms of how many miles you can drive annually. Buying a company car has potential tax advantages as well, with the cost of the vehicle being considered a depreciable business expense.
On the flip side, buying is almost always more expensive and you can expect higher monthly payments than you would pay if you choose to lease.
Cost of branding the vehicle
Many business owners use the branding of a company vehicle as a cheap and effective form of advertisement. Building brand awareness is always crucial to attracting potential customers and clients and if done correctly, the branding of a vehicle will save you tons of money in advertising costs while also easily generating awareness for your company.
There are plenty of options available for branding your company vehicle. The fastest and most cost effective is probably the use of custom magnetic car signs. These will run you anywhere from $40-$100. Vinyl graphics are a semi-permanent option that will cost more than magnetic signs, but generally look more professional and allow for better, more eye-popping and attention-grabbing designs. You can expect to pay at least $300-$500 dollars for something smaller, while full vehicle wraps may cost up to $5,000 or more.
Company vehicles also come with an array of tax implications. On the plus side, it’s possible to take many of the driving costs, such as depreciation and insurance payments, as a tax write-off.
On the other hand, distinguishing between business and personal is vital for avoiding any trouble with the IRS. For instance, making a trip from the office or warehouse to do business with a client is considered a business trip but commuting from home to the office is not.
Remember, some tax-write offs only apply if the vehicle is owned by the business, not an individual. Things tend to get a bit more complicated when the vehicle is used for non-business purposes, as for the most part, non-business use of a company vehicle is considered a taxable fringe benefit.
Like many of the above considerations, the kind of insurance policy that would work best for your company vehicle depends a lot on how it’s used. If your company vehicle is used for the pickup or delivery of goods, if the vehicle is leased by a corporation, or if, among other things, the vehicle weighs above 10,000 pounds, then commercial insurance is probably the ideal option.
Business use of a vehicle comes with a different set of risks, liabilities, and demands than personal use. However, it’s a good idea to consider a non-personal car insurance policy that mitigates the risks associated with having a vehicle for company use, especially if it’s shared amongst employees. Talk to your car insurance company to weigh the options that are best suited for your needs.
What type of vehicle should you buy?
When it boils down to choosing what type of vehicle to buy, keep the primary use in mind. If it’ll solely be used for transportation, browse models that get great gas mileage. If the vehicle will be used to both get around town and pick up clients in, think about a fuel-efficient SUV. Depending on the image of your company, you may want to opt for a few interior upgrades for a more luxurious experience. On the other end of the spectrum, if the vehicle will be used for delivering product, search for something with a lot of cargo space. A van or a full-sized SUV may be the best option in this case.
I think my boss is still into considering the pros and cons of leasing a business car. These tips are on-point. Maybe I’ll send him the link to this article so he could decide. Thanks for sharing! This is really helpful.
Albert Reza recently posted…How to Start a Successful Logistics Business
Depreciation, maintenance, and fuel variables dramatically alter the total cost of running company car or van. Here are tips to cut your business’ costs.Depreciation is the principle component of total cost of ownership, and is the place you should start, because it nearly always proves to be an indicator of other issues.