In many small businesses it is common for cars to be used for both business and private purposes. When it comes to a big purchase like a car, you want to know that you are making the right decisions. In all the excitement you can get easily carried away and spend way more than you imagined.
Here are some tips that will help you stay within your budget when choosing your next car.
Business decisions should be based on numbers, not on desires
What kind of car do you need?
This is the tricky part. You need to focus on what you need rather than what you want. Vehicles are long-term assets and will most likely be bought with a long-term liability (a loan), so make sure the purchase you make is good for your business.
Make a list of features that would be good to have. If you have any extra money left over after taking care of what is necessary, then you can add some items to your car and still be within healthy range of your budget.
How much can you afford?
Whether you decide to buy or lease your next car, coming up with a realistic monthly payment that fits into your budget is crucial.
Your total monthly car payments shouldn’t exceed 20% of your monthly income.
For example Savvy’s car loan calculator will help you understand what your monthly payment will be based on purchase price, down payment, interest rate and length of loan. It will not only show you what you can afford, it will also help you control the numbers when you negotiate for a car.
Set a budget and stick to it
This step is often hard for many buyers. But it’s important for those of you who don’t want to spend too much. Set up a budget and stick to it – and try not to go over it under any circumstances. This for those of you who are easily influenced by exciting new options that can unreasonably add to your car’s bottom line. With a set budget, it will be easier to talk yourself down when it comes to crunch time.
New, used or certified used?
Once you’ve figured out the main purpose for your business vehicle, you will be faced with the choice of buying a new, used or certified used vehicle.
Buying new means higher prices, better reliability, fancier features and up to 20% depreciation once you buy. Used means lower cost, average reliability and cheaper insurance premiums.
The key factor here is determined by your car’s primary use as an asset, and how long you intend to keep it. If your business needs a car long term purposes, then it makes sense to buy a car with high residual value. If your business only uses a car infrequently, then a used car that won’t gather much wear and tear seems reasonable.
Look at total price, not base price
This is a common mistake. They look at a car’s base price rather than its total price when trying to invest in a new car. This is a mistake because you rarely pay for the base price. It is very important to consider a car’s total cost when you’re budgeting what you will be paying for the vehicle.
Small business tax break
If you are running a small business with a turnover of less than $2 million, you are able to look for cars that cost under $20,000. Your business can claim the entire purchase of the car under the accelerated depreciation scheme.
Deductions for car expenses are one of the most commonly claimed tax items.
3 tips to prepare for tax time
1. Record all business trips in your car in a log book. Remember, you must use your log book for twelve continuous weeks.
2. You can’t claim deductions for your car between home and work
3. Keep receipts for all car related expenses including interest on your car loan cost, running costs, petrol, insurance and registration.