Business Vehicle, Investing

6 Things To Know When Investing In A Car For A Small Business

Written By: Rick Orford
Reviewed by: Mike Reyes
Last Updated March 22, 2024

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Black Jeep Suv on Black Asphalt Road Near on Snowy Grass Lawn

If you’re a business owner, you know that cars are important and how buying a company car is not so different from buying a new personal vehicle. You need to be able to get around in order to make sales calls and meet with clients, but that doesn’t mean you want to spend your entire budget on a vehicle purchase. A work car can help your small business grow while saving you money, but only if it’s the right type of car for your needs. Here are five things to consider when investing in a car for use in your business:

1. What kind of company car do you need for your small business?

The first thing to consider when choosing a car for your business is how much you need to haul. Looking at trucks and vans is important if you have a lot of cargo. You also want to ensure that the chosen business vehicle has enough seating capacity for your workers and customers.

If you’ll be driving around in heavy traffic all day long, having good fuel efficiency is essential because it will save money on gas and reduce emissions caused by idling vehicles waiting in line at stop lights or stop signs. A company car should be more of an asset and not a liability, meaning you shouldn’t incur excessive charges when you use the vehicle. 

2. Do you lease or buy a car?

Dealer Consulting Couple about Car Lease

For a business owner, acquiring a business vehicle through either buying or leasing is a pivotal choice that demands careful consideration. Whether to buy a car outright or opt for a lease arrangement carries distinctive advantages, each tailored to the enterprise’s specific needs and financial goals.

Purchasing a vehicle means you own it fully, making it a tangible asset for the business. This acquisition can include a company car designated exclusively for business purposes, which can be a powerful branding tool. Additionally, ownership can lead to potential tax benefits, such as applying the standard mileage rate, enabling the business to deduct expenses associated with business use.

If you choose to lease a vehicle, it will provide you with some degree of financial flexibility, making it an appealing choice for small businesses seeking to conserve working capital. Leasing a business car often involves lower initial costs, making it an attractive option for those looking to minimize upfront expenditures. Additionally, leasing agreements typically cover maintenance and repair aspects, making it easier to predict your expenses when the vehicle is used. Tax implications should also be considered, as lease payments may offer potential deductions, enhancing the financial feasibility of this route.

Decisions decisions

The decision between purchasing and leasing hinges upon the intended usage of the vehicle. Should the vehicle predominantly serve business-related activities, ownership might offer greater tax benefits, particularly when coupled with the standard mileage rate for deductibility. However, leasing could be better than buying a business vehicle if the vehicle sees a blend of business and personal use, as it combines tax advantages with financial flexibility.

Ultimately, determining whether to buy or lease a company vehicle rests upon the convergence of the business’s operational needs and financial aspirations. By evaluating the advantages associated with ownership, such as tangible asset acquisition and tax benefits, against the merits of leasing, characterized by financial flexibility and simplified maintenance, the small business owner may make an informed decision that aligns with the enterprise’s strategic objectives.

3. How much does the car cost?

A car can be a major investment for a small business. Before you buy, ensure you know all the costs of owning a car. Avail has a tool on its website to calculate the yearly cost of car ownership. This price is determined by factors such as monthly car payment, monthly amount spent on gas, and monthly insurance payment.

Cost of the car: The price tag is just the beginning–you’ll also have to pay taxes and fees on top of that amount. Additionally, there are depreciation costs (the value of your car will go down over time), insurance costs, and fuel expenses to consider. And don’t forget maintenance and interest on loans if you finance your purchase. 

4. How long should you finance your company vehicle?

Crop businessman giving contract to woman to sign

When it comes to financing your car, the longer you can finance it, the better. Long-term financing means lower monthly payments and more equity in your vehicle. For example, if you buy a car for $30k and only make payments on it for one year before turning it in, then technically, all of that money has gone toward paying off interest rather than principal. However, if someone could pay off their loan over five years instead of three months–they would have much more equity left over after they’ve paid off their loan.

5. What are the options for financing a business vehicle?

You have a few options when it comes to financing your car. The most popular are leasing, buying, and financing the vehicle with a loan. Leasing is when you pay a monthly fee for the use of the car and return it at the end of your contract. A lease lasts around three years but can be renewed before then if you want to continue using it.

Leasing allows you to avoid paying taxes on any gains from selling your vehicle because there is no sale; instead, you’re simply turning over possession of it at regular intervals as part of an ongoing rental agreement with an auto company (or its agent). You may also qualify for tax deductions related to depreciation if you use this method. 

If you finance through a bank or credit union instead of leasing them directly from automakers, then those loans will show up on your credit report after being paid off successfully–and thus affect its score negatively unless they were taken out under excellent terms (i..e., low interest rate).

6. Can you pay cash for your business car?

100 US Dollar Banknotes

Knowing how much money you can afford to put down on a car is important if you’re a small business owner. If the answer is “not much,” then your next question should be: Can I finance this vehicle?

Now, if the answer is yes (or if there isn’t an immediate yes or no), then it’s time for some math.

How much will my monthly payment be? What about insurance and maintenance costs? How long will these payments last before I’m ready for another new ride? A concrete answer to these questions will help you determine if paying in cash is the right opportunity to finance your business’ new car. One thing that could help finance your car is applying for an Employee Retention Credit.

Other tips for buying a company car for your business

When it comes to acquiring a car for your business, good decision-making can significantly impact your financial outlook and operational efficiency. Whether you’re a small business owner looking to invest in business vehicles for the first time or considering an upgrade to your existing fleet, navigating the process of buying a car for business purposes requires careful consideration of various factors.

Define your business needs

person holding a phone while using a laptop

Begin by assessing your specific requirements. Determine the intended use for the vehicle, whether it will be used exclusively for business or will also serve personal needs. Consider factors like cargo capacity, passenger seating, and mileage demands that align with your business activities.

Budget wisely

Determine a budget that covers the purchase price and includes other associated costs of operating a car for business, such as taxes, registration fees, insurance, and maintenance. Car loans can be an option, but assess the impact of interest rates on your financial situation.

Research and compare

Research various makes and models that suit the needs of your new business. Compare features, pricing, fuel efficiency, and safety ratings to make an informed decision. Remember that prices are high the first year the car is available. 

Evaluate tax implications

Understand the tax implications of buying a car for business use. Depending on the specific circumstances, you may be able to deduct car expenses on your tax return. You can use the standard mileage rate or use the actual expenses associated with business usage.

Consider your commercial car insurance

A Paper beside a Person Typing on a Laptop

Explore different car insurance options to find coverage that adequately protects your business vehicle. Insurance costs can vary based on the type of vehicle, its intended use, and your driving history.

Maintenance and repairs

Factor in ongoing maintenance and repair costs when budgeting for your business vehicle. Your business car needs regular upkeep to ensure the vehicle’s reliability and longevity.

Resale value

Consider the potential resale value of the vehicle down the line. Opting for a well-regarded and durable model can positively impact your return on investment. Remember, you’re purchasing for your business, so resale should be included in your consideration for the benefits of buying a car. 

Test drive and inspection

Always conduct a thorough test drive and inspection before finalizing the purchase. This step ensures that the vehicle meets your expectations and is in good condition.

Consult a professional

If navigating the complexities of buying a car for business feels overwhelming, consider consulting with a financial advisor or accountant. Their expertise can help you make well-informed decisions aligned with your business goals.

More benefits of buying a vehicle 

Investing in business vehicles can help your business operate more efficiently, enhance your professional image, and support growth. By carefully assessing your needs, comparing options, and understanding the financial implications, you can make a well-informed choice that aligns with your business objectives. Remember, each business is unique, so tailor your approach to buying a car for business to suit your specific circumstances and goals.

The benefits of having a corporate vehicle for your business include:

  • Access to reliable transportation can be used for personal and professional use.
  • Being able to take clients or customers out on the road, which can boost sales and provide you with valuable exposure.
  • Access to mobile office space allows you to get work done while on the go.

Choosing the right vehicle for business purposes is crucial when deciding whether or not it’s worth investing in something like this. Make sure that whatever option you choose fits well within your budget and also meets all of your needs as both an employee/owner, as well as someone who drives around town every day doing business errands. 

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