It doesn’t matter how many people are employed by your startup, and it doesn’t necessarily matter what industry you operate in — your workers need to get around. Many small businesses decide to manage a small fleet of vehicles, perhaps to offer services to local customers or else to help their employees go from here to there on a regular basis. Fleets are unendingly useful, but they can also be unnerving for those unfamiliar with building and managing them.
Undoubtedly, you have some questions about commercial fleets that need answering before you throw yourself into one of your own. Read on to learn a bit about small business fleet basics, so you can get started on growing your own fleet for your startup.
Leasing vs. Owning
Just as you would with a personal vehicle, you have the choice between leasing your fleet vehicles or buying them. Each option has advantages and disadvantages that you should consider as you build your fleet.
Leasing a vehicle is like renting: You are paying for the use of the vehicle instead of the vehicle itself. There are two types of leasing agreements, open-ended and close-ended leases, both of which can be beneficial in certain circumstances. In either case, leased vehicles tend to be subject to wear-and-tear and mileage limitations; if you exceed these limits, you might have to pay penalties or purchase the vehicle outright. There are benefits to this type of arrangement, such as:
- Capital preservation. Leasing offers lower monthly payments than financing a vehicle, so your startup will have more capital available for other business projects. Plus, because leased vehicles tend to be newer, you gain access to vehicles with lower maintenance and fuel costs.
- Replacement flexibility. When your lease ends, you can swap in your older fleet vehicles for newer models, giving you access to top-of-the-line performance and features.
- Reduced administration. Your company name is not on the title of a leased vehicle, which means you are off the hook for ongoing paperwork and expenses like registration, tag and licensing, title retention, property taxes and more.
Typically, leasing is ideal for younger, smaller businesses with lower budgets and greater opportunity for growth and change. Additionally, leasing is advantageous if you anticipate a high turnover rate with vehicles.
Just because there are benefits to leasing doesn’t mean that owning is always a bad idea. You have the option of financing your vehicle purchases or using cash to buy vehicles outright. Here are some noteworthy positives of purchasing vehicles:
- Vehicle flexibility. When you buy a vehicle, you can choose whichever make and model, as well as modifications to ensure the vehicle exactly, suits your needs. What’s more, you don’t need to worry about limitations on your vehicle’s use, and you can remove a vehicle from your fleet at your leisure.
- Pricing leverage. You have more opportunity to negotiate the price when you buy — and buying again and again from the same dealer unlocks special deals, even fleet pricing.
- Depreciation control. You gain all responsibility for depreciation when you buy, but that can be a good thing. You can deduct vehicle depreciation in your business taxes, and you can resell depreciating vehicles, too.
There are special circumstances when owning your fleet is better than leasing. If you have specific vehicle needs and are unlikely to replace your vehicles frequently, and if you anticipate a high rate of use and maintenance, you should purchase your vehicles.
Corporations with large vehicle fleets typically maintain a fleet management department, filled with trained and experienced fleet managers who use specialized software to keep control of their vehicles. However, when both your business and your fleet are new, you likely neither need nor can afford these management measures.
In truth, your fleet management requirements will vary greatly based on the size of your fleet and what your fleet is used for. At a startup with only a couple company cars, you might be able to divide the responsibilities of fleet management — tax/title and licensing and driver management — amongst several of your employees. Then again, if your fleet is an important component of your business, you might want to consider investing in a service like Zurich Connected Cars or hiring a dedicated fleet manager. The key is that you, as a business leader, shouldn’t be responsible for hardly any of the fleet management; instead, you should delegate or outsource to reduce this workload.
Fleets can be a mandatory element of some startup plans, but that doesn’t make them any less confusing or difficult to build or manage. By educating yourself on every aspect of your fleet, you can make the right decisions for your startup and cultivate a fleet that serves your unique needs.