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Should Small Businesses Buy or Lease a Car? #smallbiz

November 18, 2013 By Bradley Taylor 18 Comments

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.

Man and woman shaking hands while handing over car keys

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?

Table of Contents

  • Buying Versus Leasing
    • How Long Do You Intend To Keep The Car?
    • How Much Mileage Will You Be Using?
    • Explore The Tax Benefits
    • Read The Small Print
      • Bradley Taylor
      • Latest posts by Bradley Taylor (see all)

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.

Car with keyring that says Leasing on itOn 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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Bradley Taylor

Bradley Taylor has an overwhelming love for everything automotive design and technology startup companies He’s a big fan of luxury cars and you can always find him on Google+ or Twitter.
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Filed Under: Small Business Advice Tagged With: small business advice

Comments

  1. Orix Australia says

    July 6, 2017 at 5:30 am

    I think leasing a car in better option for small or start ups businesses. Because they can’t pay this cost instantly and it will effect their finance. They should save or put money on their business. so from my perspective leasing is best option.

    Reply
  2. Curtis Fehr says

    May 2, 2015 at 7:31 pm

    In my opinion, small businesses should always lease a car for their business purposes. They will be surprised at the amount of cash flow that they can limit and also at the same time, have a car for their own purpose. Leasing is generally preferred by most of the small firms.
    Curtis Fehr would love you to read ..Nissan Pulsar 2015 ReviewMy Profile

    Reply
    • Gail Gardner says

      May 2, 2015 at 9:28 pm

      Hi Curtis,

      That may be true in many cases, but not always. For example, leases are not as attractive if you need to run up high mileage.
      Gail Gardner would love you to read ..The Surprising Reason Why Quality Content Does Not Attract ReadersMy Profile

      Reply
      • Joy says

        May 26, 2015 at 9:40 am

        I agree!
        If a small company needs to lease a car on regular basis, then its better to buy one because some or the other day it will be realized that the leasing amount seems to have gone equal to the buying amount of a car.

        Reply
  3. Donald Quixote says

    March 3, 2014 at 7:46 pm

    I know it will be different for each business considering this question but I think leasing actually sounds like the better idea. If you are constantly driving like some of the places I have worked at the cars get miles built up very quickly and being able to take it back to the company and let them worry about it sounds good to me.

    Reply
  4. Richard Thompson says

    February 21, 2014 at 11:33 pm

    Whether a small business should buy or lease a car is really similar to a family or individual facing the same question. It really comes down to how long you wish stick with an individual car. Depending on the business, mileage can also be a part of your decision. Something you may want to consider is whether the car will still be a good representation of your company in 3 years. If you wish to maintain a certain image, a new car every 3 or so years may be the way to go.

    Reply
  5. JD says

    February 20, 2014 at 8:16 am

    If one is starting with a small business, he really has to pay attention to simple yet very important things like this. And I think car wraps will be a great help. You have to have an identity, you know. Well thanks for this post. I am so excited to start my own business soon!

    Reply
  6. Mitch Carson says

    February 10, 2014 at 4:53 am

    You got a point,
    It gives in depth information and I have never read any article more comperehensive than this. Thanks for this valuable knowledge.Keep it up!
    Mitch Carson would love you to read ..Springfield, Mass Gears up For 3rd Tax Sale of the YearMy Profile

    Reply
  7. Mark says

    February 2, 2014 at 2:45 am

    There can be some great benefits fo leasing, especially businesses who can keep money in the business, rather than spending on a depreciating asset. But its not for everyone and overall, you could spend more money leasing than buying outright.

    Reply
  8. Ankit says

    January 16, 2014 at 2:39 pm

    Great stuff:
    If you are sincere in your work than it will give back much more as you can’t imagine.
    Small business is good to start a business.
    Thanks for sharing.
    Ankit would love you to read ..5 Best Small Cars below 5.6 Lakh | Smart Affordable as well Economical CarsMy Profile

    Reply
  9. zoya says

    December 17, 2013 at 8:20 am

    The main factor to look at would be how long you intend to own the car. Thank you for sharing very nice information.

    Reply
  10. Diane says

    December 10, 2013 at 6:50 am

    Small scale business is still a struggling business. They need more capital in order for their business to thrive. If they need a car for the business then maybe they should just get a used car so that it will be much cheaper compared to a brand new car.

    Reply
  11. Abel Ligas says

    November 23, 2013 at 8:41 am

    I have also always chosen to own rather than lease. Owning the vehicle becomes a company asset that you can depreciate over time 🙂

    Reply
  12. Adam says

    November 22, 2013 at 1:29 pm

    I have always chosen to own rather than lease. Owning the vehicle becomes a company asset that you can depreciate over time.

    Reply
  13. Rickey Olson says

    November 22, 2013 at 12:15 am

    Business car contract hire gives companies access to brand new vehicles without having to make a significant financial outlay. Instead of buying vehicles outright, business car contract hire (sometimes called business car leasing) allows companies to spread the cost of supplying vehicles to employees over set periods of time and with a much lower initial financial outlay. Contract hire is the most popular method of leasing vehicles, although there are other forms of leasing including finance lease, contract purchase and salary sacrifice (see below).
    Rickey Olson would love you to read ..No last blog posts to return.My Profile

    Reply
  14. murtaza says

    November 20, 2013 at 12:10 pm

    Good post. I think if you are sincere with your work it will bring you a much more than car.

    Reply
  15. EllaRich says

    November 18, 2013 at 5:24 am

    Great Post Bradley. The business world is full up with clever, sharp movers.Really you have good explains in your Post In my opinion this is one of the best way to expose your business. Thanks for sharing with us.

    Reply
  16. mathewdavid says

    November 18, 2013 at 5:00 am

    Thank You For Sharing the post that the small business is good to start a business because by starting a small business we can make Good contacts of businessman.

    Reply

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