In today’s tight credit market, many new chauffeur business owners with limited capital get their start by leasing vehicles. But is leasing your fleet a good long-run strategy? Leased and owned vehicles come with pros and cons, whether you are planning to expand your business or put your limo company for sale.
Leasing equipment is particularly appealing for new business owners because it allows them to hit the ground running without waiting for a loan or other source of capital infusion. Because leasing rarely requires a down payment and terms are typically more flexible than with most traditional bank loans, businesses with leased fleets may not have to worry about having debt that overshadows cash flow.
As time goes on, leasing makes it easier for business owners to upgrade to the latest and greatest vehicles and offer a wider variety of models, potentially increasing value to customers. Leasing may also be a good way get a feel for local demand. For instance, you may discover that a party bus is more popular in your region, and thus a better investment, than a stretch limousine.
Over the long term, however, leasing does come with drawbacks. Business owners are obligated to continue paying for the entire lease term, or pay large termination fees, leaving little flexibility if equipment needs change. After years of making monthly payments on each vehicle, you’ll spend more than if you had purchased them outright yet you won’t be able to enjoy any equity. If you are thinking of putting your limo business for sale, buyers may not be interested in taking over your lease.
Purchasing equipment often requires a significant upfront expense. However, a portion of the cost may be offset by depreciation deductions and, in some cases, the ability to deduct the cost of newly purchased assets during the first year. While cars are infamous for their rapid depreciation, they don’t decrease in value as quickly as, say, computer equipment. It’s still possible to recoup some of your investment by selling vehicles individually or by incorporating the value of your fleet into the purchase price when you put your limo service for sale – something that isn’t a possibility when leasing.
But while ownership is a strong argument for buying a limousine, it can also be a hindrance. Eventually vehicles get old. Mileage and repairs increase and the appeal of vehicles may decrease. Limo business owners may need to purchase fleet vehicles on a regular basis to maintain the right mix of newer and older cars.
With a healthy business, it’s possible to attract buyers with both leased and owned equipment. For instance, an investor looking to buy a job may be highly motivated yet lack the funds to purchase a company’s entire limo fleet. On the other hand, a strategic buyer interested in quickly expanding market base and lowering costs may want the benefit of a larger fleet without the hassle of lease payments. Professional limo business brokers can help owners understand value – and how value is viewed by buyers – when making important reinvestment decisions.