If your startup requires you to meet with clients often, buying a company car sounds like a good idea. It would spare you from a grueling commute, which could dishevel your appearance and affect your client’s perception of you. With a car, you can travel in comfort and style, bolstering your company image and your own.
But owning a car isn’t cheap. Fuel prices continue to rise, and maintenance can run you dry. If not all of your employees are familiar with a car’s upkeep, you might risk early wear or frequent repairs. That would increase your operational costs even more as a result.
Still, there are compelling reasons to let your team use a company car. If you think your startup is ready for it, consider these factors first:
Having a budget for a company car doesn’t necessarily mean you should go and buy one right away. Ask yourself what kind of vehicle can your budget buy first. If it can only afford a used car, will that be good for your company’s image?
Remember, creating a particular image is essential for businesses. If you want to project your startup as a luxurious brand, your resources should also look luxurious. It would boost your credibility. For instance, you can’t meet with a VIP client in a used Corolla and convince them that your company image is equivalent to a Mercedes-Benz. Though a Corolla will always be a classic, it’s not just in the level of luxury cars.
If the company’s cash alone can’t cover the amount of the car you need, consider getting a car loan from banks. They give better interest rates than other lenders. If you’d use the car purely for business, get a commercial car loan. It’s similar to a consumer auto loan, except more documentation is required. And though you can also use a commercial car for personal errands, you can only factor the business-related costs when you deduct business expenses from your taxes.
For the documents required, it would most likely include your business license, articles of incorporation, and tax identification number. If your business is a sole proprietorship, the bank would ask for its Department of Trade and Industries registration and tax identification number.
The upfront costs of a car are the tip of the iceberg. The real budgeting challenge will begin when you maintain the vehicle. Owning a vehicle in certain countries, like the Philippines, can put on a strain on your finances. Even stable companies aren’t invincible to its staggering costs. First of all, fuel prices are higher in the Philippines than in other Southeast Asian countries. As of November 5, 2021, a diesel pump cost PHP46.43 ($0.92) per liter on average.
With regard to repairs, new cars are under the manufacturer’s warranty. Most automakers also set schedules for preventive maintenance, helping car owners stay updated on their servicing requirements. But preventative maintenance isn’t given for free. It costs PHP9,000 on average, including oil changes, tune-ups, and cleaning.
Parking will also affect the costs. If you’d use the car around the capital and other major cities, expect to pay for parking every time. Parking the car on a roadside could cause it to be towed, which will require you to pay a hefty fine.
3. Your Company Policies
Before letting your employees drive a company car, review your policies. It will help determine who would be held accountable if the vehicle is misused. For example, if a sales associate would use the car 50% for business and 50% for personal use, how would this affect the loan payments? Will the sales associate bear some of its costs because they also use the car for personal purposes?
In this scenario, the company still covers the full monthly payment. But the amount you can deduct as a business expense is only up to the extent the car is used for business purposes. That would be the car’s depreciation caused by business-related trips.
The company will also reimburse the sales associate for their business driving expenses. To determine what business driving expenses are, refer to the accountable plan recommended by the U.S. Internal Revenue Service (IRS). It requires employees to provide an adequate record of business use and amounts spent. It also requires employees to return excess reimbursements within a given deadline.
If your employees can abide by an accountable plan, then perhaps it’s a safe bet to buy a company car for the team. They should also listen to your cost-saving recommendations. If an employee takes advantage of your company’s reimbursements, they might promote that attitude to the whole team. So account for these risks as well before making the final decision. But if your startup’s team is reliable, trustworthy, and considerate of the company, they may deserve that company car.