Owning v leasing company cars: Which is better for a small business?

Company cars are often essential to business operations for organisations of all sizes. From small enterprises to multi-national corporations, company vehicles are a valuable asset to aid employee mobility and are often seen as a perk for employees to feel more valued in their role.

The question remains, is owning or leasing company cars more commercially and practically viable for small businesses? This key question is considered below.

Financial implications

The obvious but key difference between owning and leasing a company vehicle is the ownership of the tangible asset. If you buy a company car outright with cash or repay monthly instalments on a loan, then you immediately have full control over the financial investment. For a small enterprise or entrepreneur with the need for only one vehicle, buying a vehicle outright is a smart option for future sustainability because that initial investment can be liquidated if the need arises. In that circumstance, buying a used car is a more suitable option because the value of a new car will depreciate more rapidly, compared to a used vehicle. For example, a used Audi A3 will cost almost half the price of a new model and you will retain a higher proportion of this investment should it be sold on.

On the other hand, leasing would incur lower upfront costs and less risk in terms of a financial investment. Without value depreciation, a leased car is more simply a disposable operating cost, with the financial risk owned by another party. Vehicle leasing can be a much more cost-effective method for larger companies who require large fleets and therefore can get greater discounts per vehicle. However, for smaller businesses, a car lease has the potential to be wasted money if the business isn’t profitable. Furthermore, a car lease is usually on a fixed term contract, so a business could be liable to pay leasing costs, even if it is not being used.

Practical implications

Owning a company car, or a fleet of company cars, comes with the added complication of being responsible for maintenance and repairs. This can leave a business vulnerable to costly repairs and lacking a working vehicle in case of a breakdown, unless covered by a relevant insurance policy. The older the vehicle is, the greater the likelihood of malfunction and breakdown, so this is a factor that has to be weighed up against financial implications. However, owning a company vehicle does give a business the freedom to cover as many miles as needed, as opposed to a lease agreement which will have a set mileage limit.

Leasing may be a more appropriate option if a business is more concerned with practicality over financial sustainability. A leasing agreement will often cover maintenance costs and provide another vehicle in case of a breakdown. Additionally, the leasing company will take responsibility for the car at the end of the contract, allowing a business to switch freely to a new vehicle or to stop leasing. Once again, leasing seems to be a more suitable option for larger companies requiring a range of vehicles, avoiding the financial and practical responsibility of maintaining them.

Which is better?

There isn’t one correct option when it comes to owning or leasing company cars. The choice should depend on the vehicle requirements of a business and its financial capabilities. For smaller businesses, an investment in a company car is arguably the smarter option because it allows for more flexibility and control over financial proceedings. On the other hand, the practicality of leasing makes more sense for businesses requiring a greater number of vehicles and with the luxury of financial security to enter into fixed contracts.