If you’re an entrepreneur looking to expand your operations in many aspects, buying a vehicle for your small business is one of the best investments you can make. Depending on the nature of your business, you may need to shuttle people, transport goods, or provide services to homes and other companies. A company car is best suited to do all of that while pulling double duty in advertising your brand so you can reach more people for free, and free is always good.
Business vehicles can also help increase efficiency when transporting employees who make client calls or improve your delivery and logistics situation, which can lead to more sales. If you’ve been using the family car for your business, you’re missing out on all these, plus tax write-offs and other benefits. Here are a few factors to consider when getting a company vehicle for your business.
Your Company Budget
Your budget will affect what vehicle your business can afford and whether or not your current finances can handle maintenance. If you’re doing well and have a positive cash flow, then incorporating a company car as a business cost won’t be an issue. You can even buy a vehicle in cash if you have some working capital, but don’t go all-in if the purchase is going to tie-up your funds. There’s always financing the car, which we’ll talk about in the next section.
Please bear in mind, however, that buying a business vehicle carries other costs, such as registration fees, insurance, fuel, tires, repair, and maintenance expenses – it’s not a one-off purchase you can put in the books and forget about. According to the AAA, a car that logs 15,000 miles a year on the road costs around $8,500 to maintain on average. On the flip side, buying a company car means that its upfront price, depreciation, and other costs are considered tax deductions.
If your finances can’t absorb the vehicle purchase, you can always look to financing, especially if you’re buying new. Even if your cash flow is good, it might make more sense to get a loan because rates for new cars are lower than ever before, and the interest on a business car loan is a tax-deductible expense. Dealerships also offer plenty of incentives, rebates, and deals for new car purchases. Some transactions can be cash discounts of $500 and up on the sticker price, low APR financing, and model-specific lease specials.
What Will the Vehicle’s Primary Use Be?
Now that you have your budget and financing sorted out, you can start identifying what the vehicle will be used for, and what type of car you need. For instance, if you haul a lot of gear and people from one location to another, you’re going to need something large and spacious, like a van or pickup truck. If it’s only you or someone else carrying documents, a small, fuel-efficient car can do the job.
Fuel economy is going to be crucial when choosing a business vehicle, especially if you’re going to cover a wide service area. If you want to save money on fuel, consider using an online mpg calculator or check Edmunds.com for recommendations on frugal cars. Choosing car brands with high resale value such as Toyota, Honda, and Chevrolet can help you in the future in case you decide to upgrade to a newer model or sell it.
Check the Vehicle History When Considering a Used Car
Instead of buying a new company car, you can look at a quality used one instead, especially if cash flow is a problem. Unlike real estate, vehicles are a depreciating asset and are generally considered a losing investment. You can use the money you save on buying a used car and inject it into other parts of your business that need funding. When buying a used car, make sure to carry out a VIN check first to make sure you’re getting one that hasn’t been totaled in an accident or stolen.
There are available depreciation and tax benefits if you buy a car for your business, but you have to keep all records on personal and business use when you file your tax return.
Employees who use the company car may take a deduction for expenses when driving on official business, but not for personal use. These expenses need to be unreimbursed to the company to become deductible.
Buying a new vehicle for your small business is a big step in the right direction. Having a dedicated workhorse to ferry yourself, your staff, your products, and your gear around is a more efficient approach than using your old family car, and it gives you free advertising to boot. By considering factors such as affordability, vehicle type, and financing, you’re going to be in the best position to purchase a car without incurring any unjustified costs for your business.
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