Different small businesses require different tasks of employees, managers, and owners. A business that requires a lot of daily travel requires representatives of the business to go from one location to the next, perhaps several times per day. Employing public transportation for this strategy would not likely be very wise.
The business should acquire a car that is on standby for travel related duties. Now, there are two common ways to acquire a car: buying or leasing. The question many small business owners must ask themselves would be is it better to buy a car or lease one?
Buying Versus Leasing
The answer is going to depend on a number of factors. For some, buying will be the better option and for others leasing is the way to go. For those unsure of what decision to make, it is best to look at the pros and cons of both buying and leasing.
How Long Do You Intend To Keep The Car?
The main factor to look at would be how long you intend to own the car. For any business that wishes to keep the same car for five years or more with no compelling reason to procure a new one any earlier than that, buying the vehicle becomes the far better strategy.
For those business that might require a new car every three years, then leasing is the best option. The process of returning the leased vehicle and signing a contract for a new model is a lot easier than buying a new car and selling / trading in the old one.
How Much Mileage Will You Be Using?
Another factor to consider would be mileage. If the vehicle is going to be on the road a lot and the amount of mileage put on it is significant, leasing a vehicle is advisable. Be aware, though, that leases have mileage limits and going over that limit can be costly. Be sure to negotiate sufficient miles in your lease. (They are typically limited to 12,000 or 15,000 miles per year.)
Purchasing a car and putting 100,000 miles on it in four years leaves the business with a car with very little resale value and a lot of maintenance work. Many parts are going to have to be replaced and a major tune-up is going to be required. The car will still be driven a tremendous amount of miles meaning more repair work and maintenance is going to be necessitated.
On the other hand, if the amount of mileage to be put on the car is minimal, then buying one may be a fine investment. Even after many years, the vehicle could have an excellent trade in value since the mileage is low and the amount of maintenance performed on it was routine and minimal.
Explore The Tax Benefits
Businesses wishing to save money on the acquisition of a vehicle should look closer at some of the tax benefits that can be procured. In the United States, buying a car for business comes with some deductions. There are, however, far more savings available when leasing because the entire monthly lease amount can be deducted.
Not everyone may be interested in all the hassles associated with taking care of a car. While it is true that the business that leases a vehicle will be responsible for routine maintenance and caring for a car, there are quite a number of hassles eliminated when a vehicle is leased.
Read The Small Print
Leasing, however, can come with a number of costs. The business owner who pays a monthly premium on a leased car for three years might be paying what it would cost to own the car free and clear. That means the fourth years of leasing the same vehicle reflects money wasted. After all, a purchased vehicle would have been paid off if the same amount of money was paid in a three year period.
Ultimately, the effect the vehicle has the cash flow of a business factors into whether or not it is worth purchasing. The least costly option means less cash is drawn out of the business and put towards the cost of the vehicle. The revenues into the coffers of a business will always have ebbs and flows. There might come a time when cash flow is limited. The least costly vehicle option can only be a benefit in such a situation.
Yes, there are quite a number of different factors that must be weighed when trying to determine whether leasing or buying is right for a small business. The main point here is no one should ever rush into making a decision. Careful and deliberate thought must always go into the process so as to determine whether or not buying or leasing is the best option.
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- Should Small Businesses Buy or Lease a Car? #smallbiz - November 18, 2013