For construction companies, a strong cash flow can mean the difference between success and failure. In today’s uncertain economy, it is critical for contractors to closely monitor their operations and determine how they can improve their cash flow. A fleet of vehicles oftentimes represents one of the largest costs for a construction business. To control costs in this area, the best place to start is to analyze the different alternatives for purchasing vehicles.
Increase Your Cash Flow: Leasing vs. Buying
When deciding whether to lease or buy, there are several factors to take into consideration. In terms of leasing, there are two primary types: open-end leases and closed-end leases.
- Open-End Lease: In this scenario, both the contractor and lessor have a mutual interest in the vehicle at the end of the lease term. If the vehicle sells for more than the reduced book value (RBV), the profit goes to the contractor; however, if the vehicle sells for less than the RBV, the contractor must pay the difference.
- Closed-End Lease: Here, the contractor is not held responsible at the end of the lease for the difference between the vehicle’s residual value and sale price. An open-end lease allows contractors flexibility in determining depreciation rates, matching the vehicle’s use with its wear and tear, mileage and useful life.
In using leasing as an additional source of capital, a separate line of credit is established with the fleet management company to acquire vehicles. By requiring a smaller capital expenditure upfront (when compared with buying outright), leasing can give contractors more funds to invest in their day-to-day operations.
Benefits of Outsourcing Fleet Management
Every contractor brings its own unique circumstances to the table when deciding to lease or buy new vehicles; therefore, it is highly recommended that they consult with their professional advisors when making these decisions, who can provide a multitude of operational efficiencies, including:
- Saving both the hard and soft costs associated with the administration of fleet purchases, such as time spent on issues related to acquiring or disposing of vehicles;
- Saving on opportunity costs incurred through maintenance and fuel costs of high-mileage vehicles;
- Providing 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;
- Monitoring and ensuring regular service checks, scrutinizing invoices, and using their experience and expertise to guarantee the most economical, timely and high-quality repairs for fleet vehicles
Enterprise Fleet Management offers a free analysis to any company with a fleet size of 15 or more company vehicles. They have the resources that help lower costs in acquisition, maintenance, fuel and resale of the vehicle at the end of its proper life cycle. To find out more about Enterprise’s Fleet Management services, contact us or call 513-241-8313.