What to think about when buying cars for business
Friday, July 1, 2016/
We’ve heard it all before, but the fact doesn’t change – a lot of small to medium businesses run on the back of their cars.
When it comes to major purchases, you want to know you’re getting it right. Decisions in business should be grounded on numbers, not on impulses. So what can you do to make sure your car purchase is wise, strategic and contributes to the bottom line?
1. Figure out the car’s primary use
If your business is purchasing a car or a vehicle, you have to ask the question, why is your business purchasing this asset? All vehicles are long-term assets and will likely be purchased with a long-term liability (a loan, in other words), so considering how much money the purchase can make for you is always a good idea.
For example, if you need a car for short trips to carry documents, thereby saving on courier expenses, a small, second-hand compact car might be best. If you’re a tradesperson or someone who carries a lot of equipment as part of your job, then a ute or van makes good sense.
Eliminating unnecessary features that cost more will give you a better idea of how the car will perform as an asset and what car you should buy.
2. Should I buy new, used or certified used?
Having figured out the primary purpose of your business vehicle, next you’re going to look at the oft-debated, seldom-settled choice of buying new, used or certified used.
Buying new means higher prices, better reliability, newer features and up to 20% depreciation once you buy. Used means lower initial cost, questionable reliability, low residual value and cheaper insurance premiums.
Certified used is the best of both worlds. These are dealer-refurbished cars with low kilometres, one prior driver and reasonably high residual value.
The decisive factor here is determined by your car’s primary use as an asset, and how long you intend to keep it. If your business needs a vehicle for the long-term – longer than you intend to loan it –- then it makes sense to buy a vehicle with high residual value and at the top of its lifespan. If your business only uses a car occasionally, then a used car that won’t gather much wear and tear makes more sense.
3. Securing business finance
When your business takes on a long-term asset it means you’re taking on a long-term liability and the same applies when choosing a car loan.
Car loans for business have a lot of advantages over consumer loans. The two major products for business car finance are chattel mortgages and hire purchases. Chattel mortgages give you ownership as soon as you buy, while the bank or lender retains ownership in a hire purchase agreement.
Chattel mortgages allow businesses the flexibility of tailoring their loan to fit their cash-flow and business requirements. In many cases, a business can make a cash-flow neutral purchase, financing 100% of the car’s value while amortising extras such as insurance and registration costs. Businesses can claim the GST on their BAS, interest payments and depreciation. They can also claim the fuel input tax credit.
Buying with a commercial car loan can give your business a definite advantage.
4. Look for cars you can claim under the small business tax break
If you run an eligible small business with a turnover of less than $2 million, you can look for cars that cost under $20,000 including GST. Your business can claim the entire purchase price of the vehicle under the accelerated depreciation scheme.
Don’t forget, it’s always a good idea to consult a financial professional before making any purchases.