Investing In A Vehicle For Your Small Business: When Do You Know It’s The Right Time?
According to Hitachi’s quarterly Business Barometer, 64 percent of small business owners are considering their options for business growth in the near future, while 60 percent of them have plans to expand in the next 5 years. For many of them, this would mean increasing their investment in the business to execute a specific growth strategy: either diversification, the addition of services, or increasing business assets and capacity. While 69 percent of small businesses are started at home, many of them come to a crossroad in their pursuit of growth where they must answer the question: Do I need a vehicle for my business? According to 54 percent of small business owners, they do need a vehicle. However, the decision to invest in a business vehicle involves considering much more than the industry statistics or whether it will reduce business expenses in the short term. It includes taking a close look at your business’ present financial situation – and its future plans.
Are The Costs Of Outsourcing Impeding Your Profits?
If your business is at the point where the costs of outsourcing shipping are rising and weakening your profit position, it may be time to consider investing in a business vehicle of your own. Many small business owners negotiate a new contract with their courier company to outsource their shipping needs. More often than not, these contracts tend to work out cheaper for a small business due to the economies of scale that larger courier companies enjoy. However, there is a point in the relationship that the costs may rise (possibly due to business growth), begin cutting into your bottom line, and outstrip the costs of you owning a vehicle yourself. When this becomes the case, its time to start looking at vehicle models.
Can Your Business Access The Relevant Tax Benefits?
You should also think about whether your small business would benefit tax-wise from owning or leasing a business vehicle. Find out what tax deductions and capital allowances your business would be entitled to claim, if any, and whether purchasing a new vehicle would leave your business better or worse off taxation-wise. According to figures released by RealBusiness and HMRC, leased vehicles are eligible for a mileage allowance of 45p a mile for the first 10,000 miles and 25p per mile after. In addition, businesses are entitled to a capital allowance claim based on their CO2 emissions. Those with a CO2 emission of 110g/km and below are eligible for an 18 percent capital allowance, while those with a CO2 emission of above 110g/km can claim an 8 percent allowance annually.
Lease payments can also be claimed as a business expense, while expenses such as insurance and maintenance can be deducted when preparing your corporation tax. If you do choose to purchase a van outright for your business, you may also be able to claim the entire purchase price through the Annual Investment Allowance scheme. However, beware that most of these benefits are calculated on the list price of the vehicle – i.e. the market value when new. So if you purchase it for less than list price or second hand, the calculation may not be based on these costs. To help you estimate the tax savings, an online car valuation website can pinpoint the correct list prices. Keep in mind these deductions and benefits are pro-rated based on the use in the business. Therefore if the vehicle use is split between personal and business use, tax benefits will be calculated accordingly.
Do You Have Immediate Plans To Expand In The Market Or Your Services?
Another indicator that it may be time to invest in a business vehicle is the growth of your small business either past, present or planned. If your small business is in the midst or on the cusp of launching growth strategies such as product line expansion/diversification or adding new services to the business rota – like the addition of next day delivery and rush orders – a vehicle may now be a necessity. Alternatively, if your order numbers are expanding and the cost per shipping for each package is adding up, it may be more cost and time-efficient to hire a delivery driver and purchase a business vehicle.
Don’t forget to include the time span a vehicle may be needed for. Short term needs can easily be solved by securing a contract or a car rental. However, a long term and ongoing need for a vehicle would make a better case for investing in a new vehicle. Investing in a new vehicle for your business brings with it a host of benefits, but requires a formidable financial commitment, both upfront and ongoing in the form of lease payments, maintenance and insurance. Therefore, before you make the leap, take the time to assess your business needs and whether it is the right time for your company to make the investment.
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