If you are responsible for a fleet of vehicles for your business, knowing whether to rent or buy the vehicles can be a challenge. While buying vehicles can add some valuable physical assets to your businessnews, there’s a lot of expense involved in the time, upkeep, and storage of those vehicles over a long term. On the other hand, renting vehicles allows you some flexibility and the ability to use the vehicles you need as you need them, however the costs can add up and affect your revenue. So, what’s the answer? As usual, the answer is “it depends.” Let’s explore some of the benefits and drawbacks of each strategy.
Net Worth, Lendability, and Assets
Every business owner aspires to see their business grow to the point that they have a high net worth and are financially secure. Most businesses don’t start off that way, however, and need to get loans out either to get started or when hard times hit their industries. Any small business owner who has had to get a loan out to get started (which is almost all of them) understands the benefits that come from having hard assets to guarantee your business. Many have used their homes or other personal property as assets to guarantee their business loans, creating a substantial risk to not just their businesses but their personal lifestyles should things go south.
This is where owning your business assets can come in very handy. If you are going through hard times like we’ve seen in 2020 and its aftermath, getting cash on-hand to help cover expenses is going to be more difficult than it was before. Lenders are going to be pickier about who they lend money to in case they have difficulty recouping the losses that come from loan defaults. Owning your fleet of business vehicles to use as collateral for a loan could save you from the risks involved with putting your home and personal assets on the line.
Convenience and Per Diem
Aside from that, even if you aren’t going through hard times and trying to get a loan, you have the benefit of owning the vehicles essential to your business and not having to rely on the stock or availability of that business vehicle from a rental agency for an important contract. If you have an essential business vehicle that you use all the time, it will be cheaper for you to own it in more cases when comparing the per-day cost.
Odd Jobs and Breakdowns
There are some drawbacks that come with owning, and depending on your business it might not make sense to own. For one thing, your vehicle needs a place to park. Depending on the vehicle, that can take up a lot of room. Does your business have enough space to fit your vehicles? If it doesn’t, you will have to either park them in risky places or invest in a larger commercial property to house them. If dealing with the expense of a fleet isn’t bad enough, the investment that comes with commercial property rental and ownership is its own bag of worms.
Beyond that you have to make sure that you have a solid organizational structure for all of the paperwork that comes with ownership. Keeping records of your vehicles and their warrantees, insurance, and all the rest is important for a variety of reasons. Keeping the vehicles registered, properly insured, and the repair/maintenance history impacts your ability to handle things like accidents, breakdowns, and operational failure. Plus, if you do buy a lemon, you lose money while your vehicle is in the shop and may need to rent another one anyway if you are under a time crunch, adding significantly to your expenses.
Flexibility
This is where the benefits of renting come in. While you still need to keep your rental contracts handy, when you are renting you don’t have to worry about things like long-term storage, maintenance, and government registration. These are all things that the rental company handles, leaving you with more time to use the vehicle to meet your business need.
Additionally, there is a lot of flexibility involved with renting that doesn’t lock you down with owning a vehicle that you don’t use enough to add value to your business. If you are a contractor who specializes in jobs related to cranes or dump trucks, taking on a contract that has some work that requires bucket trucks that you rarely use normally presents a business opportunity that doesn’t justify going out and buying a bucket truck. In this instance, finding a place close to the worksite that offers bucket truck rentals is the smart move since you only need the truck for the short period of time it’s necessary for your contract. This can be true for any variety of specialized commercial vehicles that would be sitting around gathering dust in a lot or garage instead of making you money.
Reliability Issues and Taking Proper Care
One of the drawbacks of rentals is similar to the drawbacks that come with renting or leasing a vehicle. When people don’t own the vehicle they are using, they are less careful with it. This can be expensive enough when dealing with a rental car that gets trashed by a driver, but with highly specialized commercial equipment this can cause additional complications. This means that rentals are going to suffer greater instances of breakdown from the extra stress and wear that comes from being manhandled by any number of users before you.
On top of that, if your vehicles operators are lackadaisical in their use of the equipment or are not properly certified in its use, it can cause significant liability not only from a financial standpoint, but also from a safety one. Shifting around vehicles that your employees don’t know how to use will lead to more accidents and breakdowns, and that can be expensive since most rental contracts will charge you for extensive damages and repairs. You must have someone who can use the equipment safely and who understands the significant risk and responsibility that comes from operating the equipment.
So, how do you know when to rent or when to buy? It depends. If you have a vehicle that you use for your business every day, then it is wise to invest in that as an asset for your business. If you have a vehicle or set of vehicles that you only need for the odd job, renting it on an as-needed basis is likely the best option for you. In either case, you need to make a cost/benefit analysis of your business need for a vehicle and consider as many variables as you can so that you can make the choice that keeps the business rolling and the revenue flowing.
