Your business needs a truck to make deliveries to customers, or to move supplies and equipment around. The problem is, you're not sure whether you should take the money out of your capital reserves to purchase one, or if you'd be better off leasing.
Everyone you consult with will have a different opinion on the subject and it's hard to pinpoint exactly which option is best. The truth is, there is no one-size-fits-all answer and it's up to you to make that call.
However, there are benefits to both options and the right one depends upon your company's financial situation, immediate needs, and your short- and long-term goals.
Evaluate Your Business's Finances
By far, the most important thing to take into consideration when deciding whether to lease or buy a truck is your financial situation. You have to watch your money if you want to take advantage of opportunities to grow. You also need to keep enough capital on hand to keep your company afloat. In other words, you can't afford to make a big financial mistake.
If you're just starting out, or your business is strapped for cash, you probably don't have enough cash to buy a truck outright. You may be able to secure financing if you have a large enough down payment and you can comfortably afford the monthly payments and you have a high enough credit score.
If you're unable to come up with a large down payment, or pay for the vehicle in cash, consider entering into a truck lease. You'll pay a substantially lower amount up front, and the monthly payments will also be more affordable. In addition, you won't have to worry as much about your credit rating when you lease.
Consider Your Immediate Business Needs
The reason you're considering a new truck for your business is because you need it to better serve your customers. That's an admirable reason and you should be commended on your customer-centric thinking.
Even so, you have to think about your business first and how your decision will affect its operations right now. If you make a hasty decision, you may end up regretting it later and that's never a good place to be.
Remember that buying a truck means you'll be solely responsible for the maintenance, repairs, taxes, licensing, insurance, and fuel. You'll also have to pay your driver and ensure that they understand and comply with DOT rules and regulations. That's a lot for a new business to take on and it may not be the best move.
Conversely, many truck leases include regularly scheduled maintenance, incidental repairs, licensing, insurance, and compliance services. Therefore, your lease payments, fuel, and driver wages are all you're responsible for. Your business needs a constant cash flow and this is one way to ensure it does.
Keep Your Goals in Mind
You have worked hard to get your business up and running and you have both short- and long-term goals that you're striving to meet.
When you're considering your options when it comes to adding a new truck, keep them in mind. In the short-term, your goal may be to satisfy your customers, but in the long-run you want to build a company that is based on a solid financial base.
Leasing a truck will certainly help you meet those short-term goals of improving your customer service and increasing your productivity. It will also help you keep more money in your company coffers so that you can make financial decisions that help you grow and remain competitive.
In the long-run, you may decide that it's best to go ahead and purchase a truck. The good news is that most leases offer lessors the option of buying the vehicle at lease end for a discount when compared to a new truck. And, since you have experience with the vehicle, you know how it's been driven, maintained, and repaired.
Consider the Tax Implications
Another important aspect of leasing versus buying that business owners should keep in mind are the tax implications involved with each option. The only way to truly know how a purchase or lease will affect your company is to speak to your accountant or tax preparer.
However, there are a few things that apply to all business vehicle leases and purchases that you should be aware of.
Lease vehicles are not considered business assets and do not show up on a company's balance sheet. Instead, the monthly lease amount is considered an expense and helps to off-set the amount of revenue the company generates. That makes leasing an attractive option for small businesses with lower profit margins.
On the other hand, purchasing a truck allows a company to reduce their taxable income. However, they are also required to report the truck as an asset on their balance sheet and to take the appropriate depreciation deduction over time. This can result in lower taxes, but it is a risky proposition for a business with limited cash.
Upgrading Your Truck
One aspect that may well help you decide whether leasing or buying is right for you is the option to upgrade. When you purchase a vehicle, you're basically stuck with it until you decide to sell it or trade it in. At that time, you will have to come up with the cash or credit to buy another vehicle.
However, if you lease a truck, you will have the option to upgrade to a newer model when your lease ends without having to go through all the red tape. This is a great option for any company that wants to maintain a professional, updated image.
It's also a good way to attract new drivers who value the safety and comfort of newer vehicles over older ones.
Deciding whether to lease or buy a truck for your business isn't always an easy choice and there are many things to consider. If you're still not sure which option is best for you, or you want more information about leasing, contact us at Wilmar.
We understand that this is an important decision and we'll do everything we can to make sure you have all the information you need to make an informed choice.
We're not only well-versed in fleet vehicle leases, but we're also committed to helping business owners like you thrive in a competitive marketplace.