As the startup scene booms across Australia, many owners will be looking to make strategic investments and move onto the next phase of the business cycle: growth. As their business grows, startup owners will find themselves having to make decisions on expanding their resources, such as employing more workers, expanding their supply chain, or securing a business vehicle. Some businesses may decide a business vehicle is necessary for its expansion. Others may choose to invest in one thanks to the comfort or additional perks it may offer employees. Regardless of the reason behind it, startups must weigh the pros and cons carefully before making such a sizable investment. From the kind of vehicle your business needs to the finances you’ll need to buy one, here’s what you need to think about when it comes to securing a vehicle for your startup.
How Much Space Is There In Your Business Budget?
One of the key things to think about before buying a business vehicle is what your business can afford — immediately and on an ongoing basis. This will tell you whether you can afford to purchase outright or lease and help you choose from a new or used vehicle. If you plan on securing a loan for your vehicle purchase, the use of a loan comparison and calculator may help you ascertain the final amount you can afford, with current interest rates taken into account. Factor in the annual charges of owning a vehicle so that you ensure your business budget still balances after the purchase.
Buying vs Leasing A Vehicle
Buying a vehicle allows you to write off business expenses attached to your vehicle such as fuel and vehicle maintenance. In Australia, small businesses are currently enjoying a government-sponsored tax write off initiative of up to $150,000 until June 30, 2020. This gives businesses a chance to purchase the business vehicle they need and claim back the full allowance as long as it costs you less than $150,000. However, it also means a larger investment on your part and in most cases, more risk including depreciation.
With leasing, your business may end up paying more over the vehicle’s usage lifetime thanks to the interest rates. However, it can be easier on your business budget in the short term with smaller monthly payments and no down payments needed. Lease agreements also come with their own set of terms including stipulated usage clauses like mileage limits. This can affect your business’s plans for vehicle usage such as long-range deliveries or use on long-distance business trips. This may end up impacting the delivery or operational range of your business plans. On the plus side, the agreement often dictates the responsibilities and costs of repairs and maintenance with the leaser, saving you money and reducing the risk.
What Is Your Annual Costs Of Owning A Vehicle?
Another important consideration before choosing a business vehicle is the overall cost of owning a business vehicle. This means looking beyond the initial purchase price or lease payment and including supplementary costs such as annual insurance premiums, service and maintenance checks, parking, and vehicle storage. For leased vehicles, filter in the accumulating interest charges over the years of the agreement. Finally, consider the annual salary for the additional employee that will be driving the business vehicle, if you plan on recruiting one.
Do You Get A Tax Break?
In Australia, businesses can benefit from tax breaks such as the accelerated depreciation scheme. If your car costs less than $20,000 then you would be able to instantly write it off. Businesses are also eligible for deductions on interest paid on any loan taken. For those that opt to use the business vehicle solely for business purposes, you are allowed to deduct the full lease payment each month. Otherwise, businesses can pro-rate their deductions. Another key point to note: consider the emission of your vehicle. This will determine the Benefit in Kind tax businesses pay each year. Therefore, it makes sense to weigh different vehicles against each other based on their features, emissions, fuel usage, and comfort factor (crucial for long-distance usage).
What Are Your Travel Plans For The Vehicle?
Finally, what are your plans for the vehicle? The intended use will dictate the kind of vehicle your purchase and just how much your business should be spending on it. For instance, businesses looking to expand their delivery network for far-reaching areas will want to prioritize reliability in their vehicle considerations. Constant breakdowns while on route will not only interrupt business operations but also impact delivery times.
Like any other business investment, securing a vehicle for your business should be done with a lot of forethought and planning. As a business owner, you want to ensure you get the best value for your money and choose a vehicle that is ideal for your business’ needs and plans. Take the time to consider all of these factors before making the leap. Therefore, when you do get the keys to your business vehicle, you can be confident it is the right move for you and your business.