Buying a vehicle for your small business involves a lot of questions: Which make and model is the most appropriate for your business? Should you get a used vehicle or a new one? Should you lease or should you buy? How do you know that the car dealership isn’t ripping you off?
Getting the best deal on your business-owned car or truck isn’t rocket science. But, you need to take the time to research your options and answer those questions mentioned above. The following are several practical tips (and some good resources) to make an informed vehicle purchase (or lease) and keep as much money as possible in your business’ bank account.
1. Think things through.
Before you start researching online car and truck listings or heading to your nearest dealership, you have to take some time to clarify for yourself what you are looking for. This involves answering several questions:
- What is your budget? What can you afford to put down, and pay per month? Can you get an outside loan for the vehicle?
- What are the main qualities you are looking for in the car or truck? For example: what sized vehicle do you need; how important is fuel efficiency; must the vehicle be able to haul heavy or bulky items?
- How often are you expecting to upgrade this vehicle for a newer model?
- How common is the vehicle you are looking for? Are you in need of a special type of car or truck?
- Will a used vehicle do, or are you in need of a new car or truck?
- Who will be driving this vehicle?
- Where will you store this car or truck?
- Will your customers actually see this vehicle? Another point to consider is if the car or truck you are considering matches your company and it’s values. If you’re a landscaper, showing up in a well-used van may be perfectly fine, but that changes if you’re a professional business consultant.
As an important side note: Don’t get so caught up in the search for the best deal that you forget to think through other issues involved with having a company car or truck, such as how you are planning on insuring this vehicle as well as where your liabilities may be in the case of a company car accident. Here too, you really need to do your research. Make sure you know the difference between personal and commercial auto insurance and that you check out some auto accident resources so that you are clear about your liabilities should an accident occur with your company-owned vehicle.
2. Understand the difference between buying and leasing.
Do you know how buying versus leasing your company vehicle will affect your business? Most small business owners may assume that buying is better simply because you are not “throwing your money away” with nothing to show for it. After all, if you buy you have an asset, right? Well, the actual distinction is really not so clear cut.
The truth is that leasing is a great way to hedge depreciation on any new car. Unless you know for sure that you are going to keep your new vehicle for five to six years, and you can put down a significant down payment, then leasing is a viable option. If you have very little to no down payment, then three years down the road you will have financed a large amount on your purchase and still have no equity because the value of the vehicle depreciates over time. Should you go to trade in that car or truck, then your company will be in basically the same position as a company that leased the vehicle.
The point is buying is great when depreciation is spread out over five years or more, and you have money to put down. Depending on current state and federal laws, you may also be able to take a deduction for the sales tax on the vehicle or write off some of the purchase price as a business cost. The benefit to leasing, however, may make it more attractive if money is tight since you could save up to $200 every month when comparing the same deal to a purchase. You may have zero equity at the end of the lease, but your cash flow over those 36 to 48 months will be significantly better.
3. Know where to go and what to look for when searching online.
Turning to the Internet to help you decide on a company vehicle will only help you if you know what you are looking for and where to go to get this information. Here is a list of some key points to consider as well as where you should go to find the most accurate answers:
- You can investigate car safety and repair records through Consumer Reports
- What fees should you pay on that car or truck? This page provides some answers, including a handy state-by-state chart. Also, make sure you understand what dealer holdback is, since it will affect how much you pay at a dealership.
- Considering buying a used car? Find out the vehicle’s history before you sign any dotted lines by ordering a vehicle history report. These reports, which require the vehicle’s VIN (Vehicle Identification Number) to access the proper database, catalog repair histories and other important information, so you as a buyer will be fully aware of any known issues regarding a particular vehicle. The cost for this service is relatively small (about $30 per report) and there are are a number of service providers to choose from. You can check some of them out on this page here. You should also know how to inspect a used car, here are some clear, easy-to-follow details with pictures for conducting a DIY inspection of a used vehicle.
- When you are ready to search online, you can compare features on several models and see how they stack up on the car makers’ own sites, and then browse for available new or used car models in your city through sites such as Edmunds.com, Nada.com, or TrueCar.
4. Be aware of the limitations of searching for vehicles online.
As much as the Internet has changed the way automobiles are sold and purchased, it still has it’s limitations. Realize that most sites you may consult for a price quote will only give you an approximate quote- especially if the site is not directly selling vehicles. Also, if you consult dealership sites for price quotes realize that they become “outdated” very quickly. So, here again, take these quotes as an estimate.
In short, the more prepared you are for the purchase or lease of your company vehicle, the more you stand to save.