Buying your first company car is an exciting phase of your business. It means that it has grown, allowing you to propel your business forward. There are a lot of things you have to consider before purchasing one though. For example, you need to calculate the costs that come with it including fuel, car insurance, maintenance, and more. Here are some questions you can ask yourself before making that big decision:
1.) Do you need a company car?
Think about what kind of business you have. If you’re a plumber or electrician, you will need the vehicle to transport equipment to job sites. If your occupation is a consultant, your car would be more of a luxury than a need.
2.) How will the company car be used?
If the plan for the car is solely for business purposes, then buying one would make more sense because you can brand it appropriately. Remember, it will act as your mobile ad.
3.) How will you pay for it?
Once you’ve made the decision, you now have to decide if you would want to buy it outright or lease.
Although your business might be able to purchase the car outright, you might want to use the money for other needs. You can agree to a specific leasing arrangement which will turn your purchase from a capital cost into an operational cost allowing you to improve your cash flow.
Here are your options:
Chattel mortgage – In this agreement, the financier will let you borrow the money to buy the business car. Once you make the purchase, ownership belongs to you. The financier takes out a mortgage on the car as a security.
Finance lease – Here, the financier will buy the vehicle you choose, and you rent it for a fixed number of months. At the end of the rental period, you have a choice to take ownership of the car, trade it, or extend the rental period.
Commercial hire purchase – Under commercial hire purchase, you are given full use of the car as long as you make regular payments over an agreed period. You only become the owner of the car after you’ve made the last payment.
Operating lease – It works like the finance lease. But here, operating expenses are covered in the contract, and you just return the vehicle at the end of it.
4.) What are the other costs to consider?
There are other expenses that you have to consider when buying a business car. You have to factor in petrol, car maintenance, and insurance. Knowing the cost of each would allow you to see how it would affect your company’s expenses. Compare different car insurance in carinsurancecomparison.com to get the best deal.
5.) Are there any tax obligations for company cars?
If your car is used primarily for business purposes and meets all the criteria of a work car, your company can claim GST credit for it. If the company owns the car, but you can use it for personal errands, you then apply the fringe benefits tax.
These are the things that you have to consider when buying a company car. It is essential to understand how making this decision can affect you and your business.