Seldom in the world of small business is a decision so cut and dry the primary decision maker can proceed with little deliberation, investigation or advice. Most often there is nuance – several layers, in fact – affecting how one determines the correct course of action. This is especially true when it comes to spending significant amounts of money on something like a new work vehicle.
For most small-business owners (read: those without wealthy benefactors gifting them brand-new work vehicles), there are only two ways to acquire new vehicles: to lease or to buy. And therein lies the question. While the right way forward can be determined only on a case-by-case basis, asking a specific set of sub-questions may help you get to an answer quickly and with confidence.
How long do you typically keep a vehicle?
If you tend to drive the same vehicle 5 or 7 years or more, perhaps buying is the way to go. Heated competition between automakers has lead to increasingly dependable vehicles across the industry in recent years. Couple that with futuristic safety features on the newest models – things like accident avoidance technology – and there’s little question a well-cared-for work vehicle could do the job long past your final payment, saving you money in the long run.
On the other hand, technology advances quickly and styles always change. If you feel it’s in your best interest to have continuous access to the latest and greatest equipment, or if you believe having a new vehicle lends an air of success to your business, leasing might be right for you. A typical lease term of 2 or 3 years means that you’re only months away from being able to swap out your current workhorse for the newest iteration.
How many miles do you drive?
Think twice about leasing if you anticipate really piling up the miles on your work vehicle. Typical lease contracts have costly penalties for surpassing the somewhat strict mile allowances – 25 cents for every mile over the limit in some cases.
Then again, there are certain financial benefits for going the lease route, particularly if your business model doesn’t call for racking up mile after mile. Lease agreements often have lower monthly payments, lower down payments and sometimes no down payment at all. For newer businesses where monthly cash flow is a concern, leasing a work vehicle may provide a much-needed financial cushion while you do your best to get established.
Will you be modifying or customizing your work vehicle?
Read the lease agreement closely and you’ll likely find that customizing or modifying your work vehicle in any way, shape or form puts you at odds with your contract, potentially costing you lots of money down the road. If you intend to upfit your new Ram 1500 with a snowplow, for example, or add a vehicle wrap to advertise the name of your business, you may want – scratch that – you may need to purchase the vehicle. Though some vehicle wraps and magnetic decals are advertised as temporary, with no lasting impact, you should thoroughly investigate such claims to determine the likelihood that they will compromise the terms of your contract.
Do you know the tax implications of leasing a vehicle versus buying one?
The IRS allows businesses to write off the monthly lease costs of vehicles used for work. Not so for purchase payments. However, thanks to Section 179 of the U.S. Tax Code, you may be eligible for other valuable tax deductions and depreciations when you purchase a new work vehicle. Consult a qualified tax professional to find out exactly how buying a vehicle versus leasing one will affect you and your business come tax time.
Whether you choose to lease or buy your next work vehicle, keep this in mind: NARI members along with their household family members and employees are eligible for a $500 cash allowance on select Chrysler, Dodge, Jeep®, Ram and FIAT® Brand vehicles. Visit the member-benefit page on the NARI website or stop by an FCA US LLC dealership today for more details.