As a business grows, and depending on the type of industry you are working within, there will come a time to invest in a company fleet of cars. It might seem like an easy cost to add up when purchasing your fleet, working out just how much you paid to purchase a car or to negotiate a rental figure on a monthly basis that you are pleased with.
There is a little more to it than that however, with the Total cost of ownership (TCO) a much more accurate way to look at the cost of running a fleet of company cars. There are a number of additional charges that your company cars will rack up over a working life, so it is important to understand what these are and how much it will realistically cost you to run a company car.
What can you do to ensure your TCO is limited over the years?
Understand Depreciation – This can account for up to 40% of TCO so be thorough with your research when purchasing a car for your company fleet. You can utilise in-depth guides from the used car sector that can tell you a fair approximation of the value of your car, van, or of a certain brand within the next three to four years. If you find a vehicle that has a higher predicted residual value than other alternative, it is likely to be easier to run in an economical way, be reliable and a popular brand.
Think of De-Fleeting – It might seem strange to think ahead to when you are getting rid of a fleet you’ve not yet bought, but it is important. When it comes time to de-fleet and sell the cars on in a few years time, you will be expected to release cars in pretty much the same condition as when they were purchased, if you want to reach the expected sell-on price. It is always handy to remember this aspect, especially if your industry is more likely to mean cars that are worked hard. Speak to leasing companies to ask how they improve residual value and reduce wear and tear on vehicles.
Fuel Costs – The cost of fuel over the lifetime of a company vehicle will account for as much as 20% of TCO and therefore is a vital component to your calculations. It is the biggest cost of a company fleet aside from the initial purchase of the vehicle itself and is something that can fluctuate depending on fuel prices at any given time, and the wider economy. Whether you use petrol or diesel will have an impact on prices, as does the condition of the cars and the way your staff drive them. You can reduce fuel costs by ensuring tyres are always fully inflated, that you analyse performance through careful fuel management (using a fleet company can help with this), as well as training staff members on effective driving styles.
Tax Costs – The tax associated with a vehicle can make up 5% of TCO. There are different tax implications for different types of vehicles and uses. Vehicle Excise Duty is relative to CO2 levels, National Insurance Contributions (NICs) are also expected on company cars, as well as benefit-in-kind tax. As an employer, you are responsible for paying NICs on each vehicle provided to a staff member for their personal use. The amount of NIC is based on the P11D value of the vehicle and the BIK rate.
Insurance Costs – Another large outlay is insurance, accounting for between 10-15% TCO. Insurance costs will vary depending on the type of vehicle that you are running, and the type of business you are running. You can look to trim the cost of insurance through researching cover-all fleet insurance, choosing to purchase vehicles with lower insurance costs generally, implement telematics and driver training programmes to reduce accident risk.
Maintenance and Repair Issues – Over the course of a vehicles lifetime there will always be costs associated with its regular service, as well as any maintenance and repair issues. This can take up 5-10% of TCO. Speak to leasing companies regarding the full maintenance packages they offer and you’ll soon see a fair picture of the associated costs for certain brands and vehicles. Also look into dealers’ networks to ascertain geographical suitability for your company and fleet needs.
Cost of Associated Fees – If you decide to sign up with a leasing company, fuel management programme, maintenance package, or other outsourced services related to your company cars there are be fees and on-going costs to consider. All of these aspects will vary depending on your choices.
As you can see, there are several issues to consider in terms of reducing the TCO of your company fleet. Always be thorough with your research before committing, as you will require use of the vehicles over a number of years before moving on to new cars and vans.
If you are the owner of a start-up business you can find advice on these pages relating to everything you need to know to put in place a solid foundation for your future. There are a number of ways in which you can keep outgoing costs to a minimum at this crucial stage of your business development; from virtual offices to telephone answering services, costing you less than physical premises and allowing you to focus on delivering a great product or service. You can also find financial health checks for small businesses, keeping you clearly in the picture on a regular basis.
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