Choosing between leasing and buying a fridge van for your business can be a difficult call to make. It has the potential to impact your business for years to come, so it makes sense to take your time to get this right.
The first step in deciding which option is right for you is to make sure you have all of the facts. Making this decision based on information rather than emotion is essential, as it could have a lasting impact on the state of your business.
In this guide, we’re looking at the pros and cons of purchasing versus leasing, so you can make the right choice that will enable your business to thrive.
Leasing versus buying: the basics
If you need to access a specialist vehicle for your business, purchasing might be your first thought. Purchasing a vehicle is a simple transaction. You’ll have to have enough money upfront to pay for the vehicle, and then it’s yours to do whatever you like. If you decide you no longer want the vehicle, you can sell it and recoup some of your investment.
The other option is to lease a vehicle. There are many different lease agreements available, including hire purchase and contract hire. With the former, you’ll have the option to purchase the vehicle at the end of the lease period. And with the latter, you’ll simply pay monthly to be able to use the vehicle.
Benefits of buying
Buying a vehicle for your business means that you own the asset. It holds some of its value, so you can recoup the cost at a later date by selling the vehicle. If you keep the vehicle in excellent working condition, you can slow the rate of depreciation.
Another benefit of buying is that you’ll have far greater control over how you use the vehicle. You’ll be able to modify it to your specifications, including with decals and internal storage customisation.
Downside of buying
The obvious downside of buying a vehicle is the high upfront cost. This can greatly impact cash flow and could tie up a lot of your working capital in one purchase.
Another disadvantage of buying is that you might have to compromise on the vehicle to suit your budget. This could mean selecting an older, used vehicle which could run into more problems due to wear and tear.
And finally, you’ll also be responsible for the upkeep of the vehicle. If something goes wrong, you’ll shoulder the financial responsibility of getting the vehicle back on the road. This could lead to unexpected expenses on top of the up-front cost of purchasing the fridge van.
Benefits of leasing
When you choose leasing, you’ll have far greater flexibility over the terms of your agreement. You can make the agreement suit your monthly budget. You’ll also have fixed monthly payments for the vehicle, which can help to make business cash flow much more predictable.
You’ll have the flexibility to choose the size of your deposit and the length of your lease. If you want to access a new vehicle every few years, you could make your lease just 2 years long and then upgrade when the time comes.
Another benefit of leasing is that you can actually use this method to purchase a vehicle. A hire purchase agreement will enable you to spread the cost of purchasing your vehicle over the length of your leasing agreement
When you choose a leasing agreement, the maintenance will often be factored into your lease. This means you won’t have lots of unexpected costs piling up.
Finally, when you choose leasing you’ll have access to a much wider range of vehicles. This could mean a brand new vehicle that would be otherwise outside of your budget. You could also choose a modern all-electric vehicle to help drive down your operational costs.
Downside of leasing
One common issue with leasing is that you aren’t investing the money in an asset, you are paying for a service. You won’t be able to sell the vehicle at any point since you don’t own it. This isn’t necessarily a disadvantage, provided your business is able to operate in this way.
You could also face restrictions in how you use your vehicle. For example, there might be a mileage limitation per year. You could also face restrictions on how you decorate the vehicle or how you customise the interior. To get around this, negotiate with your leasing company to ensure you have the flexibility you require.
Which is right for your business?
The right choice for your business will depend on your budget, your requirements and your goals. You can think of a lease vehicle as an extended try-before-you-buy period.
This extended test drive can help you to determine if the vehicle is right for you before you make a decision to purchase. It can also help to free up capital for startups in the early stages so they can get their business off the ground before they make any large purchasing decisions.
If you’re not sure which option is right for you, start by shopping around. Look at leasing and purchasing options and then compare the upfront and ongoing monthly costs for each. A side-by-side direct comparison of real world examples is the only way to get a feel for which option is right for your business. Without the numbers in front of you, it would be impossible to make an informed decision.
It’s also vital to check the fine print of any agreement before signing up. When agreeing to a lease that will go on for multiple years, it’s essential to know what you are getting yourself into.
It’s also worth checking the tax benefits of each option, as this could have a significant impact on the overall cost to your business. Every business is unique, so check with your tax advisor before making a final decision, as they will be able to help you to understand how it impacts your tax liability.
