A key to success for small business owners is keeping a firm grip on expenses, and certainly, buying a car is a big one. If not done correctly, you could find that acquiring a car for your company sets you on the road to business failure. But purchasing a vehicle for your company can have a lot of advantages, too, including some that actually can improve your bottom line. In the right situations, it can boost productivity, bolster your company’s reputation and raise customer awareness.
Before deciding that a new vehicle is the answer to your current small-business needs, ask yourself the following questions:
Does your business have enough cash on hand to pay the upfront costs?
One of the most common reasons a small business goes under comes down to not having enough cash on hand. With that in mind, you need to think long and hard about whether your balance sheet will be able to absorb the initial outlay for buying or leasing a new vehicle. Because even if you’re not purchasing a car outright, a down payment, taxes, insurance and fees likely will be in the low four-figure range. This can be a significant chunk of capital for a small business, and remember, any cash that goes for purchasing a new vehicle today means that that much less will be on hand for other expenses tomorrow, whether it’s for payroll, other equipment or an unexpected emergency. And you don’t want to get trapped into putting down too little money up front and getting locked into a long-term loan deal, which could hamper your company’s future financial flexibility.
Does your company have the cash flow to pay for ongoing costs?
On the topic of future finances, once you’ve got that vehicle on the books, your company becomes responsible for ongoing upkeep, such as routine maintenance, insurance premiums, fuel and storage costs. All this can add up quickly. For instance, Vincentric’s 2016 Best Fleet Value in America awards revealed that the three-year ownership costs for the best-value midsize sedan for commercial customers—the Hyundai Sonata—was about $22,000; for the Nissan NV200, the leading value among small cargo vans, the three-year ownership costs were approximately $24,000. There is good news, however: The greatest part of those costs comes in the form of depreciation, and that can work in your favor when it’s tax time.
Can you take advantage of the tax benefits?
The vehicle-purchase cost-benefit analysis also needs to extend to tax consequences. When making a major decision like this, first discuss it with your own tax advisor, who could evaluate how the IRS rules would apply to your specific return. The general benefits to buying a car for your business include the ability to deduct many of the costs involved, from depreciation to fuel to maintenance. Then there’s the “Section 179” deduction. Under this section of the IRS Code, taxpayers can write off the costs of certain business-oriented vehicles up to a $500,000 limit. That’s meant to cover larger passenger vans and trucks and the like, but there’s also a deduction of up to $25,000 for vehicles with a gross vehicle weight between 6,000-14,000 pounds, which covers a number of large SUVs and pickups. Just remember, these deductions only matter if your small business has generated a tax bill from which to deduct them.
Has your company outgrown its current transportation resources?
Beyond making financial sense, buying a vehicle for your company should make sense from an operational standpoint. If you’re currently relying on your own small car to haul around equipment or make deliveries, for example, the increased cargo capacity of a new van or truck could be a nice boon for productivity. Further, newer vehicles are likely to be more fuel efficient and reliable than older ones, resulting in potential reductions in gas and repair costs. It’s also worth pointing out that newer vehicles often provide higher levels of safety technology and occupant protection. And newer, connected cars have tech capabilities that might translate to productivity for your business: If employees need to connect to the Internet while out on appointments, or be more easily reachable while out on deliveries, for example, having a connected company car could improve efficiency.
Does your vehicle need to dress for success?
Finally, although most small-business owners should keep their eyes strictly on the bottom line, there are some companies and some fields for which making a good first impression is particularly important. And driving the right car goes a long way in making that impression. If you’re a realtor who is meeting and/or driving clients, or a baker dropping off cupcakes, or a contractor looking to impress at the job site, well, showing up in an old beater can be a definite roadblock to getting future opportunities for your business. Similarly, the kind of company car you use can make a statement about the values of your company. Using hybrid or electric vehicles, for example, shows you place value in eco-consciousness—depending on your clientele, this could make a difference in your company’s appeal.
As a car expert and writer for CARFAX, Charles Krome loves to educate people on all things cars. Charles uses his expertise to help business owners navigate the world of company cars and how they can fit into a business.