When you factor in fuel, maintenance, and vehicle price tag, fleet expenditures typically are one of a contractor’s top three expenses — and one that is difficult to control.
Having a fleet isn’t an option. You need vehicles on the road to run your business. To balance this need and high fleet costs, contractors should develop a fleet-management strategy. For example, many contractors have found that creative leasing strategies preserve cash flow, reduce costs, improve company image, and contribute to growth.
Improving Cash Flow
Businesses report that cash flow is the tightest that it has been in recent decades. There are fewer lending sources, credit standards are more stringent, and customers are slower to pay invoices. But steady cash flow keeps businesses going in the short term and makes them stronger in the long term. So how can the right leasing strategy make your business healthier?
If you purchase vehicles outright, the impact on cash flow is immediate and significant — and it’s not just the cost of the vehicles themselves. Before they can start making money for you, trucks need to be upfitted with ladder racks, shelving, back-office connectivity, logos and much more, which all leads to more cash being spent up front.
Purchasing vehicles through financing will save some of the up-front cost, but most financed purchases will still require a big down payment. Upfitting costs will likely be due up front as well.
With leasing, businesses often can acquire the vehicles they need with little or no up-front costs. In fact, often the first cash outlay is the first month’s lease payment. In addition, sales tax — even in states that require immediate payment — can be built into the lease rate to preserve more cash.
Cash savings is even more dramatic when lessors are willing to build upfitting costs into the monthly lease payment.
Lowering Overall Fleet Expenses
If you purchase vehicles from a dealership, you likely have encountered the various methods dealers use to stimulate business. Ultra-cheap financing and discounts on last year’s models are two common examples. These promotions can lower the price of a vehicle, but is focusing on vehicle price alone the best strategy for your business?
Depending on the method used, leasing often includes an aggressive vehicle- replacement strategy, rather than keeping a vehicle in service indefinitely. When vehicles stay in service too long, businesses often see an increase in overall fleet costs, even when some of the vehicles are paid off. Increased maintenance and fuel expenses, combined with lost productivity due to vehicle downtime, all conspire to drive up overall fleet costs. For many contractors, these variable expenses will account for as much as 60% of their total fleet expenditure.
A leased fleet typically is composed of newer vehicles that have minimal maintenance issues and increased fuel economy. Plus, any contractor who has ever had to cancel or postpone a service appointment because of a broken-down truck knows the value of having reliable vehicles.
Protecting Company Image
When your vehicles are on the road or parked at a client’s home or business, they are the ambassadors of your brand. With a proper fleet-cycling strategy, you can guarantee that your fleet conveys the same professional image that you expect your employees to exude. After all, a contractor’s fleet is his or her No. 1 marketing tool, and a good or bad first impression can mean more or less future business.
With a purchased fleet, there is incentive to keep vehicles on the road longer, resulting in an older fleet that looks less professional. If purchased vehicles were cycled as often as a leased fleet, a contractor would likely end up paying for lots of vehicles without getting the benefit of using them.
Vehicle marketing wraps — a must for any contractor looking to maximize his most prominent and cost-effective marketing asset — are another advantage of maintaining a leased fleet. Just like the ladder racks, shelving and technology tools mentioned earlier, vehicle wraps can be built into the monthly payment, exponentially building your brand recognition at a cost of just a few dollars a month. In fact, advertising wraps have been shown to be the most cost-effective form of advertising with the biggest overall impact.
Is Leasing the Answer?
Leasing is a financing tool, but, when used properly, leasing can be the means by which you accomplish multiple business goals. Increased cash flow, reduced overall costs, and a stronger brand image are just a few of the benefits that can be derived from a professional lease strategy.
Phillip J. Schneider Jr. is the Vice President, Sales & Marketing for Mike Albert Fleet Solutions, a national fleet solutions provider specializing in strategies for contractors.
Consider cash preservation, long-term savings, and marketing implications to decide.
There is no one correct answer to lease versus buy. Since cash is the life blood of all businesses, look at leasing versus financing versus buying outright from a cash position.
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