Buying a Car for Business Purposes: The Top Considerations

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Article QuickTakes:

• Finding a vehicle that's a good fit
• Methods to acquire the vehicle
• Determine the business's bottom line

Buying a car for business purposes could potentially transform how your business runs. A vehicle that fits your company's needs has the ability to unlock new business opportunities or streamline your organization to run more efficiently. Accordingly, it's important to approach the purchase process pragmatically.

While conducting the search, your company should evaluate several factors before making a decision. These factors include finding the vehicle that meets your business's needs, figuring out the best way to acquire the vehicle, and investigating how it will impact your company's bottom line.

Finding a Vehicle That's a Good Fit

Identifying the types of vehicles that may help your business, and their associated costs, can help to jumpstart the process. For instance, a company looking to transport an individual between appointments may want to find a small, fuel-efficient car with high reliability. Alternatively, a specialty bakery may need a large cargo van to transport finished products to their final destinations.

Start by figuring out what class of vehicle would work for your situation. Then, start looking into options and features these vehicles can commonly have added. For instance, you may want to have advanced driver assistance features — such as lane departure warning systems — as an option on any vehicle you purchase or lease to help reduce the likelihood of accidents in the company car.

If you're buying a car for business for a specific use, like advertising, you may want to consider how you could add branding to the vehicle to make sure it visually represents your business in the best possible light. This could include verifying you have enough room to present your logo in a readable and unobstructed manner while considering the placement of windows, door handles, and body lines on the automobile.

All of these considerations can affect the overall cost of the car and impact your company's bottom line, so try to focus on their prices during your search. Your budget may help narrow down the list of options you'll choose from.

Methods to Acquire the Vehicle

Once you have an idea of the type of vehicle you're looking for, it's time to go shopping. You'll need to evaluate all options to find a solution that's appropriate for your business.

Buying a New Vehicle

Purchasing a new vehicle for your business may make sense depending on your plans.

Pros

• Warranty: New vehicles often come with warranties, which can reduce costs in the first few years of ownership.
• Reliability: A new vehicle has little to no miles on the odometer. Worn out and broken parts are uncommon.
• Appearance: A new car likely doesn't have any dents, scratches, or other cosmetic imperfections.
• Customization: You can pick the options your company needs, including the latest technology options.
• Ownership: You own the vehicle and can do what you see fit to customize it.

• Cost: Buying a new vehicle could cost you more money.
• Ad valorem property taxes: If you pay taxes based on the value of the vehicle, these will be higher with a new car.
• Loss of value: New vehicles tend to lose a large portion of their value in the first few years of ownership.

Buying a Used Vehicle

Used vehicles provide a different set of potential advantages and drawbacks to consider.

Pros

• Lower initial cost: Used cars typically have lower costs based on age, mileage, and other factors.
• Avoid upfront depreciation: Buying a used vehicle may mean you won't experience the most significant depreciation in the first few years of ownership.
• Insurance costs: Insuring a less expensive car may cost less than insuring a more expensive new car.

Cons

• Shorter manufacturer's warranty: New car warranties may transfer to a second owner if the terms haven't expired, but you'll have less time remaining in the warranty period than if you bought the vehicle new. If the warranty expired, you might not have a warranty at all.
• Potential reliability issues: Older cars with more miles have more wear and tear. This could cause reliability issues and require more frequent repairs.
• Could have different income tax impacts: Used vehicles may not qualify for the same income tax benefits as new vehicles. Consult an income tax professional for information about your specific situation.
• Loans may cost more: Lenders usually charge higher interest rates on used auto loans than they do for new auto loans.

Leasing a Vehicle

If you don't need to own a car, leasing a vehicle could work for your business.

Pros

• Often a lower monthly payment: Leases may allow for a smaller monthly payment compared with purchasing a vehicle.
• New car benefits: Your leased car comes with a new warranty and no wear and tear.
• Can upgrade your car at the end of the lease: Since you don't own the car, you can lease a newer car and upgrade to a newer and more reliable vehicle when your contract expires.

Cons

• You don't own the automobile: At the end of the lease, you must return the vehicle. The business does not own the car unless they purchase it at the end of the lease.
• You may have to pay mileage overage charges: If you put more miles on the car than the lease allows, you'll likely have to pay per-mile overage charges.
• May not modify the vehicle: Your lease likely prohibits you from modifying the vehicle substantially.

Determining the Impact to Your Business's Bottom Line

After narrowing down your vehicle choices and preferred methods for acquiring the car, you must consider how buying a car for business purposes impacts your company's bottom line— beyond the upfront cost to get it. Ideally, purchasing the vehicle shouldn't put a financial strain on your business. To determine this, you'll need to look at the total cost of owning the automobile and review your budget.

Costs you may want to look into may include:

• Registration fees: Registration fees for business vehicles may differ from personal vehicles. Check with your local authorities for more information.
• Taxes: Some states or localities charge ad valorem personal property taxes, which can add up quickly on newer vehicles worth more money.
• Fuel costs: Look at the price of fuel, how much you will drive the vehicle, and its fuel economy to help calculate an estimated fuel cost.
• Insurance costs: Insuring a business vehicle can add a significant cost depending on your use. Contact your business insurance agent to get a quote.
• Tax impact: Tax impacts of owning or leasing a vehicle can vary depending on your business's situation. Contact a tax professional for information about how a vehicle could impact your business's income and other taxes.

The Bottom Line

Purchasing a vehicle for your business can help to take it to the next level, but it's important to buy the car in a way that makes the most sense for your organization and its financial situation. Once you've explored the three major considerations above, you can start shopping for the perfect vehicle for your business.