Company Car Leasing – The Pros And Cons For The Small Business
There are many expenses to consider when running a small business and there is not always a huge amount of money to play with. Property costs and utility bills are a constant worry and insurance premiums constantly chip away at profit margins. Staffing levels and costs will concern even the most robust of small company and when you look at the price of running company vehicles it can be overwhelming.
This is why car leasing can be a really good choice for small businesses as it keeps the overall costs down. The initial price of purchasing company cars can be high and by leasing cars this expense is disposed of. Car leasing companies will arrange a contract on a car to car basis or a fleet basis and the price will be set monthly. This means that a small company has a firm idea of how much money they need for each invoice and there should be very few surprises when budgeting for a vehicle.
Company cars tend to be used for more than domestic vehicles as they are used almost daily and will normally travel greater distances. This means that they need servicing on a more regular basis and will be more expensive to maintain in terms of new tires and other parts. A car leasing deal can be arranged for these extra expenses to be taken into consideration and included into the monthly charge. By doing this a small business can organize their finances to control everyday expenses without the worry of extra costs that are associated with running company cars.
A down side of car leasing is that the vehicles are not actually owned by the small business that is leasing them and so cannot be seen as assets. This will affect the ability of the small business when it looks to obtain a loan from a bank. Banks will determine a company’s assets as part of the worth of a company and in turn decide how much money a small business can borrow against its assets.
Also by owning vehicles a company will eventually be able to get some of the initial costs of buying a vehicle back when it comes to selling the vehicle. When cars are leased the car will go back to the leasing company at the end of the term and a new leasing deal will be struck for a new vehicle.
However, when a small business decides to lease its cars it has the option of increasing and decreasing its fleet and, therefore, employees without too much risk. Most leasing deals will have the option to return a vehicle before the full contract term has been fulfilled. There may be a fine or compensation to pay but it is safer than buying a vehicle only to find, after a short amount of time, that the extra cost of the vehicle and staff member is detrimental to the running of the business.
When considering car leasing against car buying for small businesses it comes down to risk. Buying company vehicles can be an investment which saves money in the long term but there is a lot of risk involved. By leasing company cars this risk is removed as the leasing company is responsible for upkeep costs and the depreciation of a vehicle’s worth.
Dane Smith is consultant in the financial area and his advice to the small business owners is to look for the great possibilities that company car leasing (Do you know that the Danish term is firmabiler ?) offer.