Many savvy entrepreneurs look into reinvesting their profits for expansion purposes. One compelling way for these business people to scale their operations is by increasing the number of vehicles in their fleet. While you may be familiar with the process of acquiring a personal vehicle, buying a business vehicle may entail a different approach.
It can even be head-scratching in certain aspects, especially when it comes to securing car financing, timing the purchase, and leveraging tax benefits.
If you want to ensure that you’re on the right track throughout the vehicle acquisition process, this article will lay out six tips to help in your journey to obtaining your next company car.
Acquiring a business vehicle is a major business decision. It can lead your business in one of two directions: the path to exponential and prosperous growth or a path to unswallowable debt for years to come.
Having said that, you must assess your purchasing decision before you push through with the acquisition.
If your cash flow isn’t enough to cover the running costs of a car loan, and if you’re low in capital, then it may be better to postpone the purchase until your business is in a less precarious position.
The primary way to know your financial position is by looking at your financial statements, particularly your cash flow and income statements.
These two financial statements give you the figures you need, based on historical data, to determine whether you can afford to make a business vehicle purchase. These metrics include things like your monthly cash flow and profitability margins.
If the financial statements prove to support the vehicle purchase, you can proceed with the acquisition of the vehicle.
The nature of your business largely dictates what type of vehicle you should be getting.
For instance, if you’re expecting your vehicle to be mostly used for light cargo and delivery works, then having a van would be the most optimal choice. Vans would also be good for people doing service-based, door-to-door work, like plumbers, pest control specialists, and electricians.
If the main purpose of the car is to transport people from place to place (like moving to and from a client’s office), then you’d want a fuel-efficient sedan or SUV. A Honda Civic or a Toyota Camry, for instance, would be great for the job.
If you’re expected to move large objects like construction supplies and furniture, then you may require a heavy-duty or box truck in your fleet, like the Mitsubishi Fuso Fighter.
Given the wide range of vehicle options to choose from, it’s important to fully flesh out the motivation behind your desire to acquire a new vehicle—and such motivation shouldn’t be fleeting.
From there, research some other features and specifications that you’re seeking out for your next vehicle, and select some non-negotiables, if you have any. This can help narrow down your options and put you closer to securing your dream business car.
Now that you have an idea of what car you’re getting, now’s the time to buy it. A tiny fraction of entrepreneurs have cash on hand or a high-limit credit card that they can use to buy a car and use immediately.
However, for most small business owners, they’ll have to resort to considering one of several car financing options to get the car and use it for their business
Here are some popular financing options for car purchases:
Besides those options, the dealership you’re engaging with to purchase a car may also give you some perks like rebates or a 0% down payment. You can also request money from angel investors, crowdfunding sources, or personal acquaintances.
However, for the most part, the options above are the likely channels for prospecting business car owners to go through to acquire a vehicle.
Once you’ve narrowed down your financing options, then it’s time to choose a lending institution to partner with. Gather quotes from various lenders and weigh their specific pros and cons.
Besides the price of the down payment and interest rates, look at the length of the loan term and any associated fees. Look into customer service quality and additional perks of going for a particular institution’s service over other lending institutions.
By weighing your options, you can secure the best financing method available to you for your business.
If you want to fully utilise tax benefits, it’s best to buy the vehicle under your business’s name instead of a personal one. By doing so, you can make tax deductions on depreciation, fuel, interest payments, and maintenance costs.
Furthermore, you should also consider keeping track of business travel in a logbook, particularly start and end times and kilometres travelled. You can benefit from talking with a tax professional or licensed accountant for a more accurate assessment of your finances.
Once you have a business car, be sure to purchase a commercial car insurance policy for it too. These policies protect your car in case it sustains physical damage to property or injury to you or another person.
In the UK, it’s mandatory to insure your vehicles if you intend to drive them in public places. The basic insurance plan covers collision-based damages, like vehicle-to-vehicle accidents or car rollovers.
However, you can also get extra coverage on non-collision-based damages, like theft and natural disasters. This can give you peace of mind knowing that your car is protected in case it’s a victim of an unwanted situation.
Choosing a new vehicle for your business isn’t like picking out a car for personal use. It calls for a detailed plan, careful thought, and a clear grasp of how business and personal vehicle purchases differ. Whether it’s evaluating your financial standing or pinpointing the exact type of vehicle that matches your business requirements. Every phase is crucial. Selecting the right financing option and investigating lenders are steps that cannot be overlooked in securing a wise investment.
Moreover, acquiring the vehicle in your business’s name and obtaining commercial car insurance are not just protective measures; they also offer tax benefits that support your business’s financial well-being and efficiency.
These six tips outlined above offer a clear guide for business owners aiming to augment their operations by adding to their fleet.
By adhering to these tips, you can move through the vehicle buying process with ease, sidestep common errors, and choose a vehicle that serves both your immediate needs and future growth ambitions.
The aim is to commit to a business vehicle that fulfils your current requirements while also propelling your company’s growth and expansion over time.
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