Each year, the United States of America sees over 100,000 start-ups as entrepreneurs look to invest in their ideas. One of the key aspects of launching a start-up?
Deciding when to invest in business assets such as leasing a warehouse or storefront, building a website or securing a business vehicle. Around 54 percent of small business owners said they need a vehicle, according to a Manta survey. However, for start-up business owners, circumstances can be slightly different thanks to cashflow uncertainty and the other risks startups tend to face.
As a result, they need to ensure they secure the right vehicle for their startup needs and that it lends itself well to the nature of the business. So how do you know that it’s time for your start-up to purchase a business vehicle?
More importantly, are there sustainable ways for a start-up business to finance its new addition?
When is a Vehicle Needed For a Startup?
One commonly cited reason for investing in a business vehicle is to aid in business growth. However, if you are just launching a business, there is a high chance that growth is not in your immediate plans, and also that business assets such as premises and company cards are not always the first needed.
In fact, around 69 percent of startups launch at home, according to statistics by Global Entrepreneurship Monitor. However, there are certain industries and business ideas which require the use of a vehicle, such as mobile food services, floral delivery businesses or consulting agencies.
In some cases, you may need a vehicle to get to your clients for meetings and to provide your service. In other cases, a vehicle is needed to transport and sell your product, such as a catering van.
This does not necessarily mean that you should head out and purchase a business vehicle, however. Many small business owners use their existing vehicles to carry out business duties, including sourcing and transporting materials in those initial launch years.
This is not uncommon, since 77 percent of startups rely on personal funds to finance their venture initially. If your personal car is not suitable or the nature of your business calls for you to choose a specific model of vehicle or have it customized, the key thing for a start-up is to keep the vehicle costs low.
Keeping the Costs Low
As a new business starting out, keeping costs low is essential to succeeding, especially since 82 percent of the time, poor cash flow management is the culprit behind business failure. To keep purchasing costs low, if you do decide to add a vehicle to your business, you want to consider all your purchasing options, including the benefits of leasing.
Matching your business needs (and timeline) to the purchase options is a good way to get started. If you have a seasonal startup or are looking to use a vehicle in peak periods, short term rentals and leases are cheaper than spending thousands outright. For longer periods, business vehicle leasing can suffice.
However, be aware that this comes with financing costs – i.e. interest rates. Keep this in mind when you consider your options for financing a vehicle as a startup.
Finance the Purchase With a Startup Loan
Start-up loans are amongst the most common funding sources for new businesses. In addition to the traditional bank term loans, there are also peer to peer lending platforms and digital lenders that now offer start-up loans and grants, which help new businesses purchase office and business equipment or invest in areas such as marketing.
If you haven’t secured funding as yet, it may be time to check the eligibility criteria for one. Most lenders will consider your credit history, predictions and forecasts for income and a business plan/strategy for use. Ideally, you want to show the use the vehicle will serve in your business and how the ROI is boosted thanks to this investment.
Consider A Lease Arrangement
A second option is to lease a vehicle. As a small business, you can enjoy tax advantages when you lease, and it is also the perfect alternative if your business is short on cash, since many auto dealers or motor companies offer a no or minimal downpayment deal.
There is also the option of trading in and upgrading your business vehicle when newer models are released or your business needs change (such as a boom in sales). Of course, the downside is that most lease arrangements come with a sizeable interest rate tacked on, and with monthly lease payments, you are adding another overhead to your startup.
Go Second Hand and Use a Business Credit Card
Preowned cars and vans can prove to be a serious bargain and much more within the reach for a cash strapped start-up. If you do have a business credit card and your vehicle cost is on the lower end, you could use your card instead. The key is to use it smartly.
Go for a card that has promotional offers such as zero percent on purchases for a set time, which gives you time to pay it off without the interest costs. You also want to use a business credit card with cashback and rewards that can be used in other areas of your business. This way, you minimize the cost of buying a new vehicle and also make savings in other areas of your business, such as employee travel.
Investing in a business vehicle is like any other business decision a business makes: it must be done with research and a plan. For startups, the trick is to do it smartly and as cost-effectively as possible. Neglecting to do so puts your cash flow and your start-up at risk.