Leasing a vehicle: When businesses grow, they need their resources to grow, too. For many businesses, this means increasing their fleet size. Increasing your fleet can allow you to service customers faster, make deliveries quicker, and close on more sales calls. All this works to increase your bottom line.
When it comes to expanding a business fleet, the first instinct is to buy the vehicle. But is that really the best option?
There are many advantages to leasing a vehicle for your business instead. Here are some of the reasons that leasing could help your business save time and money while still giving your company the resources it needs.
Why Your Business Should Consider Leasing Your Fleet
Leasing a vehicle means you can easily upgrade to newer models
For a lot of industries, the safety equipment included in their fleet vehicles matters a lot. It could get you a reduction in your vehicle insurance and could even be a mandatory feature for your industry. When you lease a vehicle, you’ll be able to trade in an older model for a newer one every few years. That can help you cycle out the old fleet inventory and ensure your company is staying at the forefront of safety features.
This can ultimately be good for business. When you upgrade your vehicles every couple of years, you’ll avoid the age where vehicles start to break down more often (and end up costing you more money). Plus, new vehicles may prove to be more reliable, meaning you’ll be able to service your customers more efficiently. These upgrades could be a big advantage for your business in the long run.
It could help you keep your maintenance costs down
A lot of leasing agreements will include some kind of service plan. This might be covering your oil changes or providing you with other routine maintenance. This could be a big help to your cash flow. Fleet vehicles need a lot of maintenance due to the wear and tear placed on them. If you can offset the cost of maintenance through a leasing agreement, you could spend less on keeping the vehicle going.
One thing to keep in mind is a lot of leasing agreements will require you to have regular maintenance done on the vehicle. If you don’t, you might face an extra charge at the end of the lease. However, think of this as an advantage. These service appointments are there to prevent your vehicle from breaking down or experiencing issues. Holding to that schedule can help prevent losing time on the job later on.
You’ll spend less of your capital expanding your fleet
Buying a vehicle costs a lot more up front than leasing one will. You’ll need money for a deposit, and if your credit isn’t perfect, it could be a pretty sizable amount of money. Your monthly payments are likely going to be higher than a lease, too. If you need to buy multiple vehicles for your fleet, that’s an even bigger drain on your capital. Leasing, however, can get you in the vehicle that you need without putting a lot of money down. For a lot of businesses, that means being able to expand their fleet without compromising their cash flow. It’s easy to scale your business up when needed.
This is one of the reasons leasing is great for big and small businesses. When you don’t have to reach so deeply into your own pockets, even a small business can afford to expand. David Cullen writes for TruckingInfo.com, “While leasing historically has been favored by sizable fleets running fairly standard equipment on shorter trade cycles, full-service and finance lessors say such marketing distinctions are not so cut and dried anymore. More fleets are looking more closely at all their options, from outright ownership to finance leasing to full-service leasing, even opting to own some trucks while leasing others.” That means there are plenty of leasing options for fleets of all sizes.
There may be tax advantages to leasing a vehicle
If you thought there were only tax advantages for buying a vehicle for your business, think again. There are tax savings available for those leasing a vehicle as well. For business vehicles, you can deduct the monthly payments of the vehicle as long as you used the vehicle for business purposes.
If you used the vehicle solely for business, you can deduct 100 percent of the monthly payments. If you used it for about 50 percent business and 50 percent personal use, then you can deduct 50 percent of the monthly payments. The BalanceSMB.com notes that you can also deduct your mileage on a leased vehicle.
You can learn more about the tax implications of leasing a vehicle in IRS Publication 463, “Travel, Gift and Car Expenses.” It’s worth having a discussion with your business accountant to learn more about how leasing a vehicle could be an advantage for your bottom line.
You may get a better deal on buying later on
At the end of your leasing agreement, you’ll have the option of turning the vehicle back in or buying it out. Dealers will often give you a great deal on buying the vehicle at the end of your lease. You can end up saving a lot of money on the purchase of the vehicle versus what you would have paid for it initially. So in the long run, you may end up buying the vehicle for your business but spending less by leasing it first.
When you are negotiating a lease, find out what the final buyout amount will be. If you think you’ll want to end up purchasing the vehicle at the end of the lease, make sure you’ll have the capital to do so.
Is Leasing a vehicle the Right Choice for Your Business?
It’s important to weigh the pros and cons of leasing for your particular business. For many, it’s the right choice that can help them scale as they need without depleting their cash reserves. But it may not be right for every business. Consult your financial advisor or fleet manager to determine the next best steps for bringing new vehicles into your fleet.
Is the situation the same when buying a vehicle for personal use? Click here to read.