For many small businesses, having a fleet of reliable vehicles is an absolute must. However, purchasing the vehicles is not often the best financial decision. The up-front investment, ongoing maintenance costs, and evolving business needs can turn a fleet into a financial burden.
Leasing often makes the most financial sense for small businesses. By partnering with a leasing company that also offers fleet management services, small businesses can take advantage of these 9 benefits:
Free Up Cash Flow
One of the top reasons why many small businesses prefer to lease their vehicles is that the process does not require up-front cash. You can find a financing option that suits your business, and invest your cash in other opportunities for high ROI.
Leases also have lower monthly payments than purchases, so your business can preserve capital costs.
Under Section 179 of the IRS tax code, businesses can deduct the cost of leased vehicles from their gross income. This incentive was created to encourage companies to lease or purchase vehicles and equipment as an investment in their business.
Qualifying for this benefit can be a bit complicated, but general rules include:
- Vehicles Can Be New or Used
- Vehicles Must Be Financed With Certain Qualified Leases and Loans
- Vehicles Must Be in the Company Name, Not the Owner’s Name
- Vehicles Must Be Used for Business at Least 50% of the Time
- Claiming Section 179 is Only Allowed in the Tax Year the Vehicle is Acquired
For the full details on Section 179, view the IRS’ policy statement.
Branding & Upfitting
While your drivers are on the road, why not capitalize on the advertising potential? Research from the Out of Home Advertising Association of America explored the effectiveness of outdoor advertising tactics (billboards, signs, vehicle wraps, etc.) and found that:
- 90% of Travelers Take Notice of Out of Home Advertising
- Over 40% Searched for a Brand Online After Seeing One of Their Advertisements
- 74% of People Who Visited a Business After Seeing an Ad Made a Purchase
Fleet leasing companies understand the importance of effective branding on the road, and will customize your vehicles however you need — from adding your company name and logo on the doors, to custom-designed full vehicle wraps. This also includes upfitting to make your drivers’ lives easier on the road, and can help protect your products and equipment.
Some of the branding and upfitting capabilities can include installing:
- Custom-Designed Branded Decals and Vehicle Wraps
- Storage Units, Toolboxes, Ladders, and Racks
- Safety Features, Like Back-Up Alarms, Spot Mirrors, and Exterior Lights
- Ergonomic Features, Like Step Bumpers, Side Steps, Drop-Down Ladder Racks, and Grab Bars
Lease agreements offer far more flexibility than purchasing vehicles or renting them as needed.
If you have seasonal needs, like a summer camp or a college, short-term leases can include skipped payment options so you will not be billed during your off season. You can also start with one or two vehicles and adjust your fleet as your business scales. Here are a few more flexible features of leasing:
- Custom Term Lengths — From a Few Months to Several Years
- Select the Exact Vehicles You Need
- Replace Vehicles As Needed
- Custom Mileage Options
- Extend Your Terms if Necessary
Managed Maintenance Programs
Work vehicles can take a beating, and the last thing any business needs is an expensive bill from a vehicle repair shop. Not only is this an unexpected expense, but it also means your vehicle will be out of service until it can be fixed.
Fleet leasing companies offer maintenance programs to control costs and keep operations running smoothly. The extent of the program will vary depending on the leasing company, but the right partner will offer:
- 24/7/365 Roadside Assistance
- Reminders for Routine Maintenance
- Warranty Claims Handling
- Nationwide Vendor Networks
Reduced Depreciation Loss
Purchasing vehicles poses a huge risk for fleet managers because vehicles begin depreciating as soon as they leave the dealer’s lot. This can result in financial losses when selling the vehicle.
Fleet leasing companies are able to purchase vehicles at more affordable prices, which helps reduce depreciating loss. You also do not have to worry about overpaying for your new or used vehicles.
Lower Fuel Costs
Fuel typically accounts for 60% of a fleet’s operating costs. However, leasing your fleet can reduce this cost in two ways.
First, leasing vehicles means you will have access to newer models. Modern cars, trucks, and vans feature maximum fuel efficiency and handle emissions better than older vehicles, which means your drivers can refuel less often.
The second way to save on fuel costs will just depend on your leasing partner. Many fleet management companies offer fuel management programs that give you access to a network of vendors that can drive down the cost of fuel.
If your fleet leasing partner offers telematics, this can also help you detect excessive fuel spend, establish more direct routes, and reduce engine idling to enhance the efficiency of your fuel.
Higher Employee Retention
If you were to spend the majority of your day behind the wheel, would you rather do so in a beat up, seven-year-old work van or a new, modernized model? Almost everyone would prefer to drive a new vehicle over an outdated model, and professional drivers are no different.
Leasing your fleet means you will have access to the latest vehicles, without having to worry about complicated, expensive trade-ins. Since drivers in every industry prefer to operate newer vehicles, this can help boost your employee recruitment and retention.
Technology has become an integral part of fleet management, and leasing newer vehicles gives you access to all the latest tools.
By monitoring trip data, vehicle diagnostics, and driver behavior through telematics and GPS tracking, you can identify areas for improvement. Maybe you find that your drivers are aggressive accelerators and take longer routes than necessary. Not only is this unsafe driving behavior, it is also is a waste of fuel. Telematics enables you to intervene by providing insights that would otherwise not be available on an outdated vehicle.
Deciding to lease your fleet instead of purchasing is just the first step. Your leasing partner will become an extension of your team, so take the time to research and vet fleet leasing companies. And remember: The leasing company should fit into your business, not the other way around.
Mike Combs serves as Vice President of Emerging Markets at Merchants Fleet, serving a diverse group of industries including commercial, hospitality, and national franchise partnerships. He has strategized with countless clients across broad industries to provide responsive and creative leasing resources, funding, and fleet management services to drive optimization of assets.
He has 17 years of fleet experience and is a frequently sought-after industry resource, serving as a presenter for vehicle and equipment leasing, and as a fleet management consultant to several national franchise brands.