Buying a Car for Your Business? How to Avoid Mistakes

Tips for buying a business car

Remember the following tips and best practices when buying a vehicle for your business.

1. Choose your business vehicle’s size carefully.

Aesthetics are fine, and choosing a sports car might be a fun statement of ambition from your business. However, will it be of much use at 2:30 p.m. on a Wednesday when it’s needed to shuttle your weary sales team with a trunk full of sample goods to a client two towns away?

Consider all the regular journeys your business’s vehicle will make, and assess how much space you’ll need — now and in the near future. Perhaps a sedan is the most logical solution. Maybe you’ll need a van to complete all your tasks. Careful thought is crucial.

Skip Davenport, owner of D&D Motors in Greenville, SC, says businesses often buy for current needs instead of accounting for growth. “The biggest mistake that people make is buying a vehicle that solely meets current needs instead of looking at forecasted growth needs and trying to get a vehicle more versatile for their business,” Davenport said. 

Instead, Davenport recommends assessing several aspects of your current and future requirements to determine the right vehicle size. “[They should] think about what the primary objective is and how long they plan to keep the vehicle. This helps decide the best engine choices and sizes of vehicle,” Davenport explained. “Think about who the primary driver is and how many bells and whistles are needed for the job that it is intended for.” 

2. Calculate the total cost of the vehicle.

Obviously, you shouldn’t buy a company vehicle if you can’t afford the payments. However, when deciding which vehicle to buy, calculating all associated costs is crucial. Beyond the down payment, accumulated monthly payments and commercial car insurance costs, consider garage, fuel, repair and maintenance expenses when calculating the total cost of the vehicle. Generally speaking, foreign and luxury brand vehicles are more expensive to maintain and repair. 

Remember, although company vehicles are business assets, they lose value over time. It probably doesn’t make sense to buy a costly vehicle unless there’s an excellent reason. For example, if you’re a financial advisor to wealthy clients, a nicer car will help them view you as successful and capable of handling their finances. Otherwise, a more practical option will typically have overall lower costs.

3. Consider essential business vehicle add-ons.

When buying a car for your business, consider what optional physical and product-related extras are imperative for you, if any. “Physical add-ons would be service bodies for trucks and shelving for vans,” Davenport explained. “Product-wise, [add-ons would include] maintenance plans and telematics.” Vehicle add-ons can often bring practical benefits, limit depreciation and potentially boost vehicle safety — which is just as critical as workplace safety. 

For example, if your company vehicles must go on longer journeys, GPS fleet management systems are essential. But if you’re a local company that will operate one car and serve a limited audience, satellite navigation may be a battery-draining albatross in your dashboard. 

Passenger airbags are legally required in all new vehicles, making them crucial for transporting employees, customers or vendors safely. While not mandatory, side airbags are highly recommended because they provide additional protection in side-impact collisions. While not essential, cosmetic additions like alloy wheels and a metallic paint job help fight off depreciation and instill a sense of prestige for your brand while the company car is on the move.

4. Don’t underestimate the competition’s company cars.

It’s always good to let your work do the talking, but what if your rivals use newer, slicker vehicles than you do?

Keeping your business competitive while showing off your brand’s prestige on the go is a tightrope to walk. You don’t want to overspend and shorten your cash flow by gassing up an extravagant, large-engine car every three days. However, you don’t want to look inferior to the competition. 

Ensure your vehicle choice can hold its own in a competitive market, but don’t be drawn into the unnecessary purchase of a fuel-guzzling motor.

5. Consider aesthetics when purchasing a business car.

A company car represents your brand and can be an unexpected source of advertising. If it’s aesthetically pleasing and compelling, you may even generate new sales leads.

If you’re partial to having your business represented by a company vehicle, you don’t want something that blends into the crowd. A more eye-catching car, whether it’s beautiful or just a little bit different, helps guarantee that your business will be noticed.

6. Stay true to your purpose and review your vehicle options properly.

Throughout the buying process, stay committed to your business vehicle’s intended purpose.

While shopping the market for a vehicle that matches your intentions and ambitions, you’ll likely be met with plenty of tempting offers and bargains for vehicles that aren’t what you set out to buy. It’s crucial to determine whether any vehicle you’re considering can cope with the demands it will face. 

Purchase a vehicle that can do the job, whether it’s for a 9-to-5 shuttle between offices, regular liaising missions or door-to-door marketing.

7. Prioritize fuel economy when buying a business car.

After adding a vehicle to your workforce, the last thing you want is to pay exorbitant costs for constant refueling. Sometimes, you can justify a fancy car for personal use if it’s a sports car or an executive-quality vehicle. However, it’s difficult to justify a 5.0 engine when transporting your CPA between offices. 

Keep an eye on your chosen car’s fuel economy using online miles-per-gallon calculators. Alternatively, consider a hybrid or electric vehicle. 

8. Get your business car insurance right.

Purchasing the right commercial auto insurance is crucial. Standard business insurance policies don’t typically carry the level of protection you may require if you’re using your car for work purposes. 

When you consider the disparity between commercial auto liability insurance and standard car insurance rates, you may be tempted to skimp on your coverage. However, the risk of invalidating your policy is too significant to sidestep adequate coverage.

There are typically three business car insurance categories with various commercial car insurance costs: 

• Business use by you
• Business use for all drivers 
• Commercial traveling policies

It’s best to explore these coverage levels and choose the most appropriate for you and your company.

9. Maximize tax deductions by paying for the vehicle through your company.

Buying a vehicle through your company can bring tax benefits. The IRS allows businesses to deduct depreciation and auto loan interest in addition to the expenses you can deduct when you use a personal vehicle for work, such as mileage, fuel, repair and maintenance. For individual company vehicles, you can use bonus depreciation to deduct 60 percent of the vehicle cost in 2024. (This percentage is set to phase down in the future.)

Your business is not required to show a profit to take this deduction, which is good news for startups. Larger businesses can use Section 179 for fleet depreciation but must show a profit for that tax year to qualify.

However, Armine Alajian, CPA and founder of The Alajian Group, stresses the importance of doing your due diligence. “Don’t assume all vehicles qualify for full deductions; not every vehicle qualifies for full tax benefits,” Alajian warned. “Some have limits on depreciation deductions, particularly luxury vehicles.”

10. Weigh the pros and cons of used vehicles.

If you can’t afford a new vehicle, consider the used car market. Used cars have already partially depreciated, so you might find one that gives you more use for your money. If you decide to buy a used car, choose one with a reputation for reliability and try to get the newest model possible within your budget. 

Additionally, ask the seller for maintenance records. Regular maintenance is one of the biggest predictors of a vehicle’s reliability. If you’re buying from a dealership, inquire about pre-owned warranties and ask if you can have a third-party mechanic inspect the vehicle before you buy.

11. Ensure you’re getting the best possible price.

At most dealerships, you can negotiate the price of a new or used car. Negotiation is also common when buying a used car from an individual or business. You will have more leeway to lower the price on a pre-owned vehicle because you can use its condition to justify the cost decrease. 

Effective negotiating tactics include not appearing rushed, mentioning that you’re considering other vehicles or sellers, and offering to pay cash in exchange for a discount. Stay alert for special deals in your area. “Look for fleet discounts if you need multiple vehicles, as some manufacturers offer fleet discounts to businesses,” Alajian advised.

12. Consider leasing a car for your business.

Leasing a company car may be a cost-effective option for your business. It typically requires a lower down payment, and repair and maintenance costs are often included or lower. You can also drive a higher-end vehicle for a lower monthly payment than you would if you purchased it, and lease payments are generally tax-deductible for businesses.

However, keep in mind that leased vehicles often come with mileage restrictions, and you’ll need to ensure the vehicle remains clean and undamaged. Additionally, at the end of the lease, you won’t own the car as an asset to sell. Weigh the benefits of leasing against these potential downsides before deciding.

13. Take your company’s mission and values into account.

If appropriate, look to your business’s mission statement and values to help guide your vehicle choice. Here are a couple of examples: 

• Sustainability: If sustainable practices are an inherent part of your organization, it’s only right that your vehicle choice reflects this. By showcasing your commitment, you’ll show customers and other stakeholders that you follow through on your values with action. This can even help your brand by increasing intent to purchase, creating goodwill and reducing price sensitivity.
• Domestic support: If your values include supporting domestic employment and labor unions, consider buying vehicles made in the United States. This includes American manufacturers like Ford, General Motors and Chrysler (some of which are made in other countries) and foreign-owned manufacturers with U.S. manufacturing plants.

Of course, you must balance values-based purchasing with your company’s needs. For example, if you support sustainability but your vehicle must take time-sensitive cross-country trips, an electric vehicle may not be the best option. In this case, consider a hybrid or an all-gas vehicle with excellent fuel efficiency. 

Benefits of buying a company car

Buying a company car can bring significant benefits to your business, including the following:

1. Buying a company car brings tax advantages.

A significant benefit of purchasing a company car is the tax advantages. Many business owners know that some insurance costs are tax deductible. However, they don’t always realize they can deduct car insurance premiums and expenses beyond deductibles if the car is used exclusively for business purposes. 

It’s important to assess the best way to claim your company car before filing annual taxes. You can deduct the cost of the car either by mileage or by the actual expense. Calculate the mileage and expenses related to the business car and share these figures with your business accountant.

2. Buying a company car can protect your personal insurance rate.

An additional benefit of a company car is that it does not impact your personal auto insurance plans. If the vehicle is involved in an accident, your personal auto rates are not negatively affected. 

3. Buying a company car can help you control your corporate image.

If a salesperson arrives at a prospect’s location and takes them to lunch in a clunker, your company image could suffer. When you own the vehicles your employees drive while they’re working, you can strike the right balance between successful and conservative. 

Unless your company sells luxury or premium products to very wealthy people, an overly expensive company car can make customers think your prices are too high. Conversely, a vehicle deemed too cheap might convey that your company is struggling and, therefore, risky to do business with.

4. A company car lets you spread brand awareness.

Your business car, van or truck can include information like your brand name, logo, domain name, tagline, contact information and graphics. Everywhere your vehicle goes, it’ll spread the word about your company, what you do and how to contact you. In most cases, employees wouldn’t typically be OK with this kind of branding on their personal vehicles.

5. A company car can help you attract talent.

A company car can be an attractive employee perk to mention during the hiring process — especially when new employees will drive as part of their position. Imagine a salesperson who must drive regionally to visit customers. They’ll likely prefer to sign with your company if they can use a company car rather than go with a competing job offer that requires them to use a personal vehicle.

6. Buying a company car lets you specialize vehicle features.

A company car can include features you or employees might not have on private vehicles. For example, if you have a roofing company, you would need a truck with storage for ladders and a towing hitch for a trailer with tar and other supplies. If your company makes deliveries, a van with ample space for boxes would come in handy. 

When you have a fleet of vehicles, you can use one of the best fleet management services to ensure your drivers and their cargo are safe and where they need to be at all times. 

Mistakes to avoid when buying a car for your business

Even with the best intentions, your company vehicle purchase can go south. Here are some of the biggest mistakes you can make when buying a car for your business — and how to avoid them. 

1. You buy a business car that’s unsuitable for your needs.

If you haven’t thoughtfully considered your purchase and buy a car that’s too small or doesn’t have the features you need, the vehicle will end up being useless and an ongoing expense. 

Here’s how to avoid this mistake:

• Understand your needs. Ensure you understand precisely how your company will use the vehicle, who will use it and how often it will be used. For example, if your team will use a vehicle for long drives, comfortable seats are a must. 
• Test-drive vehicles. Get behind the wheel, and test-drive different vehicles to see how they handle and familiarize yourself with their features, including safety features.

2. You buy a company car you can’t afford. 

Vehicles that are too large or include too many added features will cost more upfront and monthly as well as have higher insurance and fuel rates. 

Here’s how to avoid this mistake:

• Understand what you’re getting. Read vehicle reviews from other business owners to identify potential advantages and disadvantages.
• Determine insurance rates. Call your insurance company to preview rates for various vehicles. 
• Look at fuel efficiency. Scrutinize each vehicle’s fuel efficiency, and compare it to similar vehicles before purchasing.

3. You buy a business vehicle that needs many repairs.

Buying a lemon or a vehicle that requires painstaking upkeep can drain your cash.

Here’s how to avoid this mistake: 

• Research the model you’re purchasing. Before buying a new vehicle, read reviews about different models to weed out those with persistent mechanical issues. 
• Ensure a used vehicle isn’t a lemon. For used vehicles, it’s even more critical to reduce the chance that your car will be inoperative often. Take the vehicle to be inspected before you buy or before your car’s grace period expires, so you can get your money back if it turns out to be a lemon.

4. You pay too much for your business vehicle. 

Because vehicles are massive capital expenses, getting the best possible price makes sense. Paying too much drains your business’s coffers and derails your cash flow. 

Here’s how to avoid this mistake: 

• Compare offers. Once you’ve decided on a model, get prices from different sellers and compare their offers. Let them know you’re considering other offers to see if they can sweeten the deal.
• Negotiate the price. Cars typically have a good amount of profit built into their prices, so the art of negotiating may get you a better price. For example, you may receive an initial price on the vehicle and then offer to pay cash instead of financing it for an additional discount. If you’re financing the vehicle, research rates ahead of time. Get preapproved, and use this as an additional reason the dealership should discount your price.