A vehicle is a major purchase, so you want to know you're getting it right.   Business decisions should be grounded on the numbers, not on impulses.

So, what can you do to make sure the purchase is wise, strategic, and contributes to the bottom line?

1. Consider its primary use

All vehicles are a long-term asset and likely acquired with a loan, which is a long term liability.   That is, the expenditure or payments match the term of its useful life.

Determine how the vehicle will assist you to make a profit.   Trades need a work vehicle to carry equipment.   A car to deliver documents may only be used to save on courier costs, so a second-hand small sedan may be best.   So, eliminating unnecessary features that add to the cost may give you a better idea of how the vehicle will perform as an asset, and perhaps which to buy.

2. New or Used?

New means a higher price, better reliability and longer warranty, latest features, and a higher residual.   Second hand is lower cost, less reliability and shorter warranty, and a lower residual.

The decisive factor is probably its primary use and how long you will keep it.   If the vehicle will be used over the long term, even longer than the loan term, then it makes sense to buy with a higher residual value and at the start of its lifespan.   If acquired only for occasional use and not much business (see Tax) or hard use, a used car may make more sense.

3. Image

Sometimes this is relevant.   A customer may make a decision to buy based on how they perceive you.   A van that is polished, no dings, and professionally sign-written tells the customer that you care about the small things too.   A doctor in a 1972 rust-bucket should make you cautious, but in a 1972 car immaculately restored would be okay.

4. Tax

A small business (annual turnover less than $2m) can use accelerated depreciation rates and write a vehicle off over 4 years.   Alternatively, it could be depreciated over its useful life, which could be around 8 years.

Until 30 June 2017, if its cost is under $20,000 excluding GST, the entire purchase price can be immediately written off.   (The 2016 Budget also allows this for businesses up to $10m too, although the legislation has not as yet been passed).

However, if it is a car (carrying capacity less than 1 tonne), a log book of business use must be kept for 12 weeks in the year it is acquired.   Only the business proportion of the GST, depreciation or write off, and expenses can be claimed.

5. Finance

This is a long term liability, and needs to be carefully considered.   The most common vehicle loans are chattel mortgages or asset purchase, and hire purchase.   A chattel mortgage gives you ownership, while HP means the lender retains ownership.

The loan can be tailored to the business cash flow and requirements.   Often 100% can be financed over 4 or 5 years, sometimes with a substantial residual, depending on vehicle age.   This reduces payments, but not interest.   The GST is claimed in the next BAS, and then (subject to log book), the depreciation and interest is claimed in the next tax return.

Who you deal with for finance is important.   Car yards can be okay, but there is probably a good commission in the rate you pay, so ask for their best rate upfront.   Your bank knows you, so that could make approval easy.   We suggest finding a good broker and stay with him.   He is working for you so will get you the best deal.   Yes, he earns a commission, but he's saving you time and gets you the best rates and conditions.   You need also to consider fees and penalties for early payout.   A no-interest deal means you are paying full price for the vehicle, so look at the overall deal from each dealer (cost and interest over the term).   If you don't have a broker, let us know and we'll recommend a reliable one to you.