For businesses that want to curb expenses and increase cash flow, a great place to start is with their fleet of vehicles. Sixty-five percent of these companies are defined as having mid-size fleets comprised of 15-125 vehicles. For these businesses, the debate over whether to own or lease comes down to two related aspects of the business: the effects on capital structure and on operational efficiencies. When making this decision, factors should include everything from hard costs to soft costs, including an analysis to determine if it makes sense to manage the fleet internally or outsource to a professional fleet management company.
How Leasing Affects Capital Structure
- Vehicle ownership can burden the company’s balance sheet; on the other hand, since a properly-structured lease permits off-balance-sheet treatment, it does not appear on the balance sheet.
- With leasing, a business can avoid incurring additional debt to fund large capital expenditures like fleet acquisitions. This is important because it allows companies to maintain a low cost of capital by having an appropriate debt/equity ratio.
- By requiring a small capital expenditure up front, leasing gives businesses more funds to use for operations, equipment, more employees, etc.
How Leasing Affects Operational Efficiencies
- With an open-end lease, a business may be able to minimize net depreciation over the life of the vehicle.
- Holding onto vehicles with high mileage can mean higher maintenance and fuel costs, which may actually be more expensive in terms of opportunity costs due to lost productivity.
- A fleet management company can provide a replacement strategy that will ensure vehicles are replaced at regular intervals to increase the efficiency of the fleet for optimal performance and resale value. In essence, they eliminate your guesswork.
The Bottom Line
In most businesses, the fleet of vehicles is a means by which the business achieves its goals and transacts business. So the bottom line question comes down to asking whether the business needs to own vehicles or if they just need to use them?
Enterprise Fleet Management can take the guesswork out of your fleet management. They use a tool that assesses the company’s total cost of ownership on their fleet takes into account everything from acquisition, borrowing rate, maintenance, fuel, cost of downtime and resale of the vehicles. This tool shows how much it costs your company to run your vehicles compared to how much it would cost if your company partners with Enterprise Fleet Management. To learn more about their services, please contact us or call Sam Abernathy or Megan Kenobbie at (513) 956-3636