As a business owner, you are always juggling decisions, customer service, procurement timing, H.R. and financial decisions. If your business needs a car to operate, you will no doubt go through the debate of whether to go the outright purchase route or the car leasing route in Byron Bay.
The decision factors are: if you own the car, you’ll have a long term asset and tax deduction opportunities. The downside here is that it is a huge expense. A car lease option, however, would have lower monthly payments and tax deductions might still be an option.
Let us help you with the decision:
An advantage of purchasing a company vehicle is that it goes on the books as an asset. The benefits of this include:
- Expenses can be written off.
- Other eligible business expenses are possibly your interest payments on a car loan and depreciation costs.
- As the owner, you might be able to negotiate lower insurance rates.
The challenge for most business owners, however, is that the outlay is a major expense. You will be financing a depreciating asset, but you keep the residual value on your books as you pay it off. Once the debt is paid off the vehicle is a profit earner with low monthly running costs.
In the instance where you nominate to use your personal car in the business, then you might also be eligible for certain line items being submitted at tax year-end. Check with your accountant as to which items can be tax deducted.
Car leasing is highly favoured by small business owners as it comes down to cash flow, primarily and monthly business costs. A car lease does not require a down payment or a collateral. There is also the added benefit that monthly payments are on the lower side.
As expected, the overall cost will be higher. Convenience always equals higher costs. The affordability also does not deliver an asset to your business but only a cost. The insurer will view this in a different light and might apply higher insurance rates.
With regards to the small print, check on the mileage limit of your lease agreement. It is important to note that if you exceed that limit, it could add to additional payments at the end of your contract.
If you are wondering what to do because your business needs you to do a significant amount of travelling. Consider upgrading to new vehicles on a regular basis. The advantage of this is omitting the need for big-ticket services on ageing parts.
Leasing also allows you to write off some of the car expenses IF they are business-related. Be sure to always keep your receipts.
It is advisable to do a cost-benefit analysis. This is where ZEP Finance can help. This step is to calculate the total cost of car loan/lease term in which you must include:
- Monthly payments, including interest.
- Projected mileage, be conservative.
- Maintenance, fuel, insurance, parking, branding and other related costs.
- The end of the contract value of the car at the end of the lease vs the value of the car at the end of the ownership period.
- Ascertain the tax-deductible costs based on the lease option and based on the buy option.
Now you are ready to make the decision.
Call us at ZEP Finance today if you need those final details double-checked. We have vast experience in car leases and car financing in Bryon Bay. Call us today Ph.: 1300 557 027.