A common dilemma facing many business owners when it comes to picking their next company car is whether it would be better to buy the vehicle or arrange a lease.
As you might expect when you are faced with a choice, there are pros and cons to consider on either side of the argument, but you want to get it right for the sake of your finances and your business.
Here is a look at the key points to consider such as your cash position, why annual mileage is important, why your future plans are relevant and weighing up the tax advantages.
Questions that need answering
When you take a look at a site like Don Wessel Honda New Cars For Sale you are faced with a choice of cars that you could see yourself driving and one of the first questions you are probably going to ask yourself is which one to pick?
Having made the difficult decision on the model that is best suited to your needs and style preferences the next part of the process is to decide how you are going to finance the acquisition of the vehicle.
How you find the right answer to the best purchasing route for your business will depend on the answers you give to a series of important and relevant questions.
When you are weighing up the pros and cons of buying Vs. leasing there are several key factors to consider such as how much cash you have available and what tax benefits might be available.
Cash is king
A strong business will enjoy positive cash flow and that can mean that you may have built up some cash reserves.
Buying the car you want outright with available cash might seem like a no-brainer in some respects but do you want to allocate such a large chunk of your money to one single asset?
You might have other needs for those cash reserves at some later point which could mean that you regret leaving the business a bit short and it might even mean that you have to sell the vehicle or borrow against it to raise the cash you need.
If you buy the vehicle on finance you will make a down payment and if you take out a lease, the amount you pay up front might be even less.
Work out how much cash you are comfortable with using from the business towards a vehicle, as that will often dictate which route you take with the financing options.
Miles matter
It is important to accurately estimate the number of miles you will be driving every year in your business vehicle.
If you take out a car lease there will most likely be a limit imposed on the number of miles you can cover. If you exceed that amount you will have to pay additional charges, which could become very expensive.
If you buy the vehicle outright or on straight finance, there will be no mileage limits imposed.
Work out your annual mileage and see how expensive that will be for a lease. Do also remember that the quicker you add up the miles the faster the car will depreciate in value.
Future plans
You will also need to decide what you want to do with the vehicle in a couple of years time.
If you have taken out a car loan you can keep the vehicle for as long as you like or use it as a trade-in on a new model when you have paid the loan. If you have leased the car you will either have to hand the car back at the end of the term or negotiate to pay a fixed sum to take ownership.
Work out how long you want the car so that you can determine if it is better to have the flexibility of outright ownership or you are happy to hand it back and look for another lease deal.
Tax advantages
It is always a good idea to get a professional opinion when it comes to working out the tax advantages to your business for leasing or buying a vehicle.
In general terms, car leasing payments are tax deductible and are based on how much you use the car for business purposes. You might be able to deduct interest you pay on a car loan as a business expense.
Whether you lease or buy the vehicle you should be able to claim depreciation, but the amount you can claim will often depend on a number of factors such as the type of car and other aspects that will influence the potential tax advantages.
There are pros and cons to both buying and leasing, so take your time working out which ones works best for you and your business.
