Building assets in your business
Building assets in your business is good business. For example, although buying and driving behaviors for personal cars can be relatively predicted, this is not always true for company cars and their various users. Research into company car drivers found there is no such thing as the typical corporate car user.
Instead, there are different company needs and how they match with the employee driving the car. Car value, tax implications and the business model all govern the use and purpose of a company car.
Matching Value to Need
You get what you pay for. The most important part of auto value, when it comes to a business, is its usefulness. A Corvette being used by a construction company offers nothing to your business since it cannot move drywall. Thus, it’s important to be able to search a car by features and price. Popular Mechanics offers a solid list of car-buying and car-selling websites, with TrueCar, AutoTempest.com and Cars.com topping the list. They each include search features, allowing you to match your company’s need, while drilling down on price and MSRP.
How Assets Affect Your Business
A vehicle is an asset; and assets have an important effect on your financial statements. If an investor is looking at your company, you will need to provide them a complete set of financial statements with financial ratios that act as a metric for your company’s health. The most common ratios are liquidity ratios that compare your assets to your liabilities.
Most small businesses only have cash in the bank as an asset, but many bills as liabilities. This makes the ratios less than favorable. The addition of a big-ticket asset, like a company vehicle, can push your ratios into the good column, as the assets increase at a rate greater than the debt.
When Expenses are a Good Thing
For most small-business owners, there is no difference between business income and personal income. It’s not like you have another job outside your business. For tax purposes, it’s best to let the company incur the expense of purchasing and maintaining the vehicle. This way, all the expenses are deducted from your business’s income to give you the lowest taxable income. The IRS allows for auto deductions and depreciation expenses under Section 179 of the tax code. In general, the maximum first-year deduction for a company vehicle is $11,160, with the available deduction dropping in price over the following three years.
The Liability of a Company Car
Make sure your employees can pass a driving test, because everything that happens within the confines of that vehicle is your responsibility. Even if an employee is making a quick coffee run, the company is on the hook for any accident that takes place. Upon insuring the vehicle, the underwriting company will assume anyone in your company has access to the vehicle. Your employees’ inability to drive safely and prudently may end up costing your company.
Have an Exit Strategy
Every entrepreneur should have an idea what their company will look like in five years. Since a vehicle is a large asset, you will need to know how and when you will get rid of it. Most companies will trade in an old vehicle for a new one. If so, predict how much the car will be worth. It may be better to start a fleet and purchase a new car (or two) without disposing the old one.
Perhaps looking ahead 5 years is not where you want to be? Are you thinking about selling your business? Would you like to know the value of your business? If you would like more information please visit my website Business valuation.
For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.