In the haulage industry, fleet vehicles are often the face of the company, portraying a company’s image to customers and potential future clients. Ownership means retaining vehicles longer, newer leased trucks can showcase your growth.
Newer vehicles send a positive message to your drivers. Being assigned the latest models with newer safety, navigation, and other technologies, can help boost morale, productivity and efficiency.
The lease vs. buy decision is often influenced by your company’s financial situation, which itself changes over time. Initially, buying vehicles tends to be the most expensive option when compared to the monthly agreements often associated with leasing. However, there are other aspects and benefits of fleet management affecting these costs over a set period of time that should be considered.
This article will highlight some of the key areas that will affect your decision on whether to lease or buy your company’s fleet vehicles, acting as a fleet management guide to what will be a big financial commitment either way.
Let’s first take a look at some of those financial implications.
Whilst buying fleet vehicles shows assets on your balance sheet, it can also make your company appear less attractive to lenders or investors, by impacting your debt-to-equity ratio. On the other hand, lease payments are often treated as off-balance sheet expenses. Leasing fleet trucks for a monthly fee generally means that investment capital can be used for other important areas of the business.
Take into mind tax and depreciation costs. As the value of trucks you own depreciates over time, expenses can lower taxable earnings. With leased vehicles, these depreciation benefits are absorbed by the leasing company.
Another potential tip to reduce fleet costs is to consider that different kinds of lease agreements have varying benefits. For operating leases, tax benefits may be realised when payments are deducted from an income statement. Under a capital lease, it may even be possible to claim depreciation, deducting interest expenses from payments related to leasing fleet vehicles.
How often do you replace your fleet vehicles? When meeting the needs of the business, the decision to lease or buy fleet vehicles centres on what you consider is the service life of a truck.
Businesses may find that fleet vehicle leasing allows them to operate newer models with the latest fuel-saving and safety technologies available. However, flexibility for vehicle replacement is often a primary reason companies choose to purchase vehicles. When changing a truck due to a development in requirements comes at a cost, ownership may be more beneficial.
If a company has been tracking fleet management and decides it’s more beneficial to buy fleet vehicles, they will avoid some restrictions. They will not be subject to mileage or wear and tear limitations associated with some fleet vehicle leasing, nor are they required to keep vehicles for a certain duration. With ownership, you can remove a truck at any time with no additional penalties.
In general, there are two main types of fleet vehicle leasing. These are operational leases, representing the traditional fixed-term vehicle lease where the ownership remains with the leasing company. And finance lease, similar to an operating lease, but at the end of the lease, the business leasing the vehicle owns it outright.
The number of trucks your company needs to maintain can be a deciding factor in the determination of whether to own or lease your fleet. For the smaller fleets, running a workshop, purchasing tools and equipment, and hiring technicians may be way over budget. Maintenance at a predictable cost with a lease is usually the clear choice in these cases.
However, considering the maintenance costs is important even for larger fleets. For all sizes of fleet operations, the widespread shortage of trained and certified technicians may influence your decision.
If you have a larger fleet though, you may prefer having complete control over your vehicles. Often a good maintenance team will foresee issues and be able to deal with them before a breakdown occurs. When leasing, this isnt always the case and you may be down a truck at the last minute with deliveries scheduled.
Vehicle remarketing and replacement is part of a vehicle cycling strategy. It’s a plan that is put together defining when vehicles should ideally be replaced, considering factors like mileage, optimal timing, and other potential financial impacts. Let’s weigh up the two options.
Fleet management leasing is designed to provide set vehicle cycles. Before signing your lease agreement, terms will define the duration you will have the vehicles, the residual value of the vehicles, and the process of returning or purchasing. Your leasing partner or lease fleet management company will dispose of the vehicles for you and help you determine replacement options.
Fleets that are owned have undefined lifecycles, and you retain complete control of the vehicles once you have the titles in hand. With this control, and working with your fleet driver management, you must decide when, where, and how to dispose of the trucks. You will also be responsible for the pricing of the vehicle.
To lease or buy is a decision every fleet manager may face, and there is no right or wrong answer. Ultimately, the decision depends on what’s best for your business at that point in time, so it’s vital to base your choice on current needs.
The benefits of fleet management combined with transport management software can help you consider all of the relevant factors. It’s a handy tool for analysing a variety of scenarios and generating reports comparing costs of leasing and buying and how service life cycles will impact your current fleet and the business it supports.
The process of making the right decisions depends on being able to gather all the relevant data from your operation. Using software from MyTrucking allows all the data to be gathered directly to one central hub, allowing you to make better informed decisions regarding fleet truck leasing and every other decision that is required to push your company forward.
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