As a small business owner, one of the first lessons in running a successful business is to separate your personal and business assets.
But this is easier said than done. Over half of entrepreneurs use personal credit cards for business expenses, and a similar percentage does the same with their vehicle. While it may seem easier to use your personal vehicle for business errands at the beginning of your business venture, the reasons to invest in a business vehicle grow stronger as your company finds its footing. For instance, having a business vehicle aids in new market growth and better liability protection, and even helps your business reach new customers. However, while over 50 percent of small business owners rely on credit card finance to survive, the $37,851 average price tag may seem too much for some small businesses. To make the process easier and keep your business finances unaffected, incorporate a few changes to your business budgeting process.
Do Your Research On Lower Cost Vehicle Models And Purchase Options
One of the most significant and first costs businesses need to consider when investing in a business vehicle is their purchase price. While there is financing available, such as business loans and auto loans, it is important that entrepreneurs budget for the overall cost before deciding whether they can afford a business vehicle. This includes the purchase price, interest costs (if using financing), annual insurance fees, and other service costs. If you do find that your business’cash flow cannot sustain the costs, there are ways to lower the purchase costs.
Many business owners approach auto dealers for a new business vehicle. However, there are millions of used vehicles that are no longer being used in lease agreements or even available from private sellers. Because they are second-hand vehicles, the prices are heavily reduced (depending on the mileage, condition, model, etc). Pre-used leased cars also come with reduced prices if you wish to buy outright, saving you a tidy sum even if you can afford to buy a vehicle. To drive the costs down further, do your homework on the cheapest vehicle models on the market. If you plan on going electric and want to take advantage of federal tax credits, cars like the Chevy Bolt 350 and Nissan Leaf have low sticker prices. Business owners should also consider vehicle attributes across different models, including mileage, performance, and fellow consumer reviews. Cars like the Kia Forte or Nisan Versa get you better mileage, which means lower fuel costs, while vehicles with better safety ratings can get better insurance premium prices.
Test Out The Netflix Version Of Vehicle Leasing
There is no denying that buying a vehicle can be a costly business decision. With vehicle prices rising 3.5 percent this year and counting, many entrepreneurs are often faced with the use of auto financing, business loans, or credit cards – all of which come with climbing interest rates. For instance, the average auto loan interest rates range from 5.07 percent (with a credit score of 750 or higher) to 16.46 percent (if your credit score is between 451 and 599). Also, purchasing or leasing a business vehicle locks your business into another overhead cost that is due to be paid every month, regardless of your company’s business activity.
Alternatively, there are now car subscriptions being offered by startups and automakers like Drover, Fair, and FlexClub. Considered a more flexible option to the traditional hire purchase or vehicle leasing schemes, car subscriptions come as an all-inclusive package, which means add-ons like insurance are factored into the price. They also allow businesses to pause their subscription and payments for the months they do not need the vehicle, saving useful cash for a small business owner. This may have proved quite useful for small businesses that took a large hit during the pandemic. There is also the option to buy the vehicle later on, as offered by FlexClub. However, before you log on to subscribe, it is worthwhile taking the time to calculate whether it is financially better for your business. If you own a seasonal business or need a business vehicle for certain periods, it may be worth looking into.
Reduce Fleet Management Costs Using Route Planning And Preventive Maintenance Practices
The purchase costs are not the only costs attached to investing in a business vehicle. As a business owner, you can expect to incur monthly costs like gas, insurance and maintenance fees. If you plan on employing an additional employee to operate the vehicle, be sure to account for the additional salary. If you want to make the process more affordable for your business, practicing good fleet management is essential. Firstly, consider investing in routing planning software to reduce the miles traveled over the business year. This is particularly useful if you will be using your business vehicle for delivery purposes.
Additionally, stick to a strict maintenance schedule to keep your vehicle in optimal condition and avoid breakdowns. This includes scheduling preventative repairs and part replacements, annual servicing, and engine oil replacements or tire replacements. While these tasks do cost a bit more initially, they also improve gas mileage, extend the useful lifetime of your business vehicle, and ensure higher resale value for your vehicle.
Remember to tailor your vehicle purchase process to your business and its unique situation, including its forecasted financials and immediate needs. While some cost-saving models may have been successful for other entrepreneurs, they may not necessarily yield the same results for you. Regardless of how you choose to purchase your business vehicle, the good news is that there is a handful of ways to keep those costs down.