To hire or buy a business car; which is better?

James Gatheru

According to Forbes, some of the most severe challenges plaguing businesses include resource management, cash flow, marketing, and risk management.

Each of these risks is at the forefront of every manager's mind when deciding whether to buy or hire that business car their enterprise so desperately needs.

After all, the goal of every company is to generate revenue. And management is always hard pressed to ensure that all company investments work towards this goal.

When purchasing a business vehicle, the ever-present question remains- which acquisition method should you adopt? Should you hire or buy the car?

Besides determining the opportune time to make this all-important investment leap, opting for the most suitable procurement method could mean the difference between success and failure.

Therefore, it is vital to understand the pros and cons of hiring or buying a business vehicle. That is more so in cases of young businesses that are yet to get a foothold in their industry.

As we shall see shortly, it is a decision which ought to be made with the needs of the business as the chief guiding factor.

Ownership freedom

One of the few yet most significant benefits that come with buying a vehicle is having absolute control over your newly acquired asset.

Purchasing a new business car guarantees unlimited freedom in how your business can use the vehicle.

Unlike hired cars which are sometimes subject to movement restrictions, businesses can take their purchased vehicles anywhere they please.

This unbridled freedom also extends to the liberty to customise the car whichever way the owner wants. For instance, the business can have its new car branded to advertise its goods and services.

It can also opt to lease out the vehicle to other businesses to supplement the business’ revenue streams. In addition, the new car can be driven by any driver the company appoints.

These options are unavailable with rentals, for the hire companies limit how the vehicle is to be used and by whom it is to be driven.

Cost

Undoubtedly, purchasing a new car comes at a higher cost than hiring one. A business struggling with cash flow might find it challenging to marshal enough funds for a new vehicle.

Even with the flexible payment options floated by some car dealerships, the applicable instalments might still prove hefty for some business owners.

In contrast, a rental comes at a considerably lower charge and can be taken for short terms or as the need arises.

Besides, car ownership is also laden with other associated costs such as insurance and maintenance fees. The business incurs these over time.

However, rentals do not expose hirers to such charges, as the rental company pays all these before the lease. With a rental, all that the client is expected to pay is the hire charge.

For vehicles to be used for a short period, rentals are the better option as they also insulate the hirer from the adverse effects of depreciation. Since a car is prone to depreciate over time, its owner will always suffer the losses occasioned by depreciation.

While depreciation is factored into the rental cost, it is confined to the period under lease and is in most cases negligible.

Another long-term disadvantage of buying a vehicle is the hassle of its disposal once you're done with it.

While hired vehicles are returned to the rental company at the end of the contract, purchases require the owner to look for a buyer for their old or unwanted car.

Therefore, when we consider the financial implications of car ownership for a business, renting presents a more viable option.

Equally worth noting is that rental fees can be written off as a business expense for tax purposes. The same cannot be said of the vehicle’s purchase price.

Trends

Hired cars are easily interchangeable, providing a way for your business to always have a new car at its disposal.

Although that factor might be immaterial for some businesses or trades, it is a pertinent consideration in cases where the car is hired for corporate executives.

Through hiring, businesses can avail their executives of the latest cars and automotive technology.

The management will not need to grapple with negotiating for new cars every time their executives need vehicles with more recent safety features.

Dedicated assistance

Also, unlike purchased vehicles, most reputable rentals come with 24-hour dedicated assistance in case of a breakdown.

That gives business managers the peace of mind that comes with knowing that if the car stalls, their drivers, passengers, or cargo will not be stranded.

On the other hand, when purchased vehicles break down, the business has to develop its solutions.

Depending on how long it takes to resolve the matter, the company may be left exposed to potential losses such as lost employee hours, missed deadlines or perished cargo.

Extra options

Car rentals may sometimes include value-added bonuses such as chauffeur services, free vehicle delivery and pick-ups, and in some cases, coupons for free upgrades.

Sometimes a business may need a vehicle for a brief purpose. For example, it may need to transport its executives to business dinners once in a while or pick up its high-end clients from the airport.

In such cases, a car rental with a chauffeur included would be the ideal financial choice. Not only is it cheaper, but it also eliminates the need to hire a driver, all while ensuring your clients and execs travel in class.

As mentioned before, the business’ needs and circumstances control the decision.

Where the business needs the car for a short term, car rentals are the way to go. However, businesses with a pressing need for a vehicle for various daily uses should gear up for an outright purchase.

The author is managing director AJ Kenya Safaris