In business, you generally don’t have to worry about weighing out two methods of financing. If you need more stationery, you’re not exactly going to try and rent a box of paper. If your office needs a Christmas tree, you’ll never consider leasing a fir. This is why, when it comes time to choose (or renew) a vehicle fleet, owners and managers often overlook the obvious.
Whereas it makes sense to flat out purchase the small, disposable things that make the business function on a micro-level, when you’re talking about large expenditures like fleet, office space, and even bigger tools and machines, you have to view the issue shrewdly.
Sure, buying is the way it’s historically been done, but might your business benefit more from leasing your big-ticket items? Let’s weigh out the options, according to a few key metrics.
While purchasing a vehicle for your business can be viewed as a long-term investment (albeit one that depreciates in value quickly), it can have disruptive short-term consequences. The sizeable down payment and high monthly cost to buy a car can have a choking effect on your cash flow, tying up your liquid assets and restraining you from growing. You may have value in the form of a purchased vehicle – or many purchased vehicles – but that value can’t help your business grow or operate smoothly.
As for commercial car lease options, the opposite is true: you may not be investing in a car you’ll have in a decade, but, since leasing is cheaper than buying, you’re constantly freeing up cash flow, which has an ongoing, overall positive effect on your business.
If you haven’t caught on by this point, this article is pretty firmly in favor of commercial leasing as opposed to buying. But lest you think it’s just because of cash flow positivity, let’s look at another key metric: branding and image.
A purchased car can be great for your branding and image, but it will always be tied to what you can – and are willing to – afford. In that way, for better or for worse, it is a direct representation of the size and prosperity of your business. Leasing, however, because it’s far more affordable, allows you to “punch above your weight,” so to speak, to afford a car more in line with how you want your company to be viewed.
And because you can swap your leased car in every few years at the end of term, your business is always driving up-to-date vehicles. That’s something that (don’t kid yourself) clients and customers notice.
It should be clear by now that the winner in this head-to-head is leasing. It is the single easiest way for a company on wheels to save money and boost their image, and yet, because it isn’t well understood, it remains a well-kept secret, used by giant corporations but rarely small businesses.
Why do big corporations love it, other than its branding and cash flow benefits? It’s obviously all about the taxes. Leased cars get stellar tax advantages, as you can see from this government breakdown of deductions.
So you have three key areas – cash flow, branding, and taxes – where leasing clearly has an edge. The question posed by the title, whether your business should lease or buy its vehicles, was more of a rhetorical question. Of course, you should lease.