Selecting the Right Business Vehicles for Your SME

Selecting the Right Business Vehicles for Your SME

Whether you're leasing, renting or purchasing, choosing the right type of business vehicle for your SME can seem like a complex process. Here are six considerations to get you started.

By Mark McKenna

Many growing businesses will reach the point where they need to consider finding company vehicles for business use. This may be for their sales team who are often on the go, for deliveries, or for transportation of goods or passengers. Before you step straight into building your business fleet there are some important elements to consider. Here are six considerations to bear in mind:

1. Should you buy, lease, rent?

All in all, you need to consider if you are looking to achieve a lower administrative overhead, have more control over your vehicles, or benefit from better cash flow. Here's a closer look at how purchasing, renting and leasing fit into this. 

It's worth remembering that rentals are more cost-effective for return journeys of over 80-100 miles, and renting also ensures you have the most up-to-date vehicles with increased safety and fuel efficiency features.

On the other hand, leasing is also a very efficient option for companies with employees undertaking regular business travel as it provides a more transparent view of total life cost of the vehicle when compared to buying outright. Leasing frees up cash and administration time and  regular maintenance and renewal is often included in the contract. You'll also be able to make use of tax advantages for either full or partial business use. If you do go down the leased route, you can extend your replacement cycle of leased vehicles from 3 to 4 years, making savings to the business on monthly lease rates.

With no large down payment required and payments that can be part-expensed from the company’s VAT, costs can be both manageable and predictable. However, with rental or leased vehicles there will be termination penalties and limits on your mileage. Rental is also less likely to be suitable if you require a specialist vehicle, and at the end of the contract you won't own the asset.  

If you're lucky enough to be in a position to purchase your company vehicles you will have more control over what you can do with them, and the total cost of purchasing is likely to be lower than leasing. It also means that once the finance is paid that you own the asset on your balance sheet. You'll have free rein on mileage, usage and customisation of the vehicle but will need to manage the vehicles' maintenance yourself. You're also free to personalize the vehicles with company logos or advertising.

2. Maintenance and repair costs

You'll also need to consider the additional cost of regular maintenance and repair. Regular maintenance is essential and different makes and models will have different costs relating to parts, availability of parts and ease of maintenance. 

So it's important to consider the cost and ease of maintaining the models you may have in mind. If you're purchasing, it may be worth considering getting a centrally-managed body shop on board that specializes in your company vehicle type, especially if you're clocking in high mileage.

3. Choice of vehicle make and model

Environmental responsibility will normally mean taking into consideration newer models, fuel type and vehicle size. Not only will introducing more sustainable measures in your vehicle choices translate to an improved company image and doing your bit to help the environment, but you are also likely to reap the rewards of tax and VAT advantages as well as increased fuel efficiency.

'Going green' also means you can reinforce company policies and priorities by moving towards hybrids, diesels or smaller cars. Introducing low carbon emitting vehicles will help with savings on tax, VAT, fuel costs and insurance.

If your company vehicles are provided to employees as part of their overall remuneration package it can be best to only offer a limited choice of pre-selected vehicles specifically with reduced CO2 emissions, lower maintenance costs and those that are the most fuel efficient.

4. Don’t forget your ‘grey fleet’

Grey fleet is a term related to employee-owned vehicles used for business purposes. Before deciding on choosing company vehicles it's good to have an overall awareness of your grey fleet, how much employee-owned vehicles are being used and what types of journeys they're used for. 

Ideally, most companies want to look to reduce their grey fleet usage as it's extremely hard to manage and ensure that your employees are safe. You also have to make sure that the vehicle is well maintained and fuel efficient and, above all, that the vehicle is correctly taxed and insured.

5. Insurance

Insurance costs are determined partly by the make, model, age and engine size so it's important that you consider what the insurance costs are before making any hasty decisions on choosing vehicle types. Fleet insurance is the best route if you have three or more vehicles and a broker can give you a good understanding of what’s involved

It's also important to understand how the nature of your business will affect insurance costs. Your fleet size and frequency of use can affect your insurance premiums. Perhaps your employees comprise of a number of sales reps that need to carry examples of products or small amounts of stock to appointments? If so then these are all things that need to be considered as it can impact both your choice of vehicle and insurance costs.

6. Fuel cards

Finally, it's also worth considering the benefits of introducing a company fuel card. You can benefit from reduced fuel costs and help increase awareness and management of fuel usage. Fuel cards can also help massively in reducing admin time and improving cash flow forecasting.

About the Author

This article is written by Mark McKenna. As Motor Fleet Broker for Bluedrop Services, Mark specializes in Motor Fleet Insurance and offers advice and support to fleet managers. Bluedrop Services is a specialist insurance brokers covering non-standard insurance. They offer additional support and expert advice to reduce costs and downtime to your business and personal assets.