Trying to get a new business venture off the ground requires a steely commitment and a tight rein on the pursestrings. Cash flow is critical and an ill-managed budget can spell the end of a new startup. It is important to focus on the necessities when starting out and keep spending to an absolute minimum on items that are not essential to your business.
Having access to a car is seen as a necessity for most business owners, but it is also very expensive. Between the price of the vehicle, financing costs, insurance, taxes and maintenance, owning a car can drain your bank account quickly. It is no surprise that more startup businesses than ever are choosing to lease cars over a long term period instead of purchasing them.
“You get the flexibility of low cost car hire without the penalties and costs that are associated with a longer term lease,” explains Simon Howard, managing director of Norwich car hire company, First Self Drive.
Leasing usually works by hiring a car for a fixed time period and making payments on a monthly basis for the duration of the hire. Once the agreed period has ended, you simply return the car, trade it in for a newer model or renegotiate on a new leasing term for the same car.
Naturally, cost is a key driver in the decision making process when choosing to lease a car for small to medium sized enterprises. As a startup, you do not have a lot of capital to play with, and if you will not be clocking up many miles, then leasing a business vehicle can seem like a very attractive option. Many rental companies will also arrange things like maintenance and breakdown coverage as well as servicing the vehicle to ensure it is roadworthy. This all takes the financial pressure of owning a vehicle away from startup entrepreneurs.
Purchasing a vehicle outright can tie up much needed capital in assets, which otherwise would have been better spent growing the business. Another factor to consider is how quickly a car depreciates in value. According to whatcar.com, most cars lose between 50 percent and 60 percent of their value in the first three years of ownership, while the exact rate of depreciation depends on a number of factors. Ten percent of that depreciation is lost the moment a person drives a new car out of the showroom.
There are some clear advantages to leasing a company car over purchasing one. If you are interested in taking the leasing route, then it is important to choose your car rental firm carefully and do some homework beforehand in order to get the best deal. For example, some car rental companies provide longer-term rental options without the finance charges that are associated with leasing arrangements. It is also crucial to read any leasing agreement thoroughly to ensure you are comfortable with the terms laid out to check that there are no hidden charges.