Roadmap: Grow And Scale Your Existing Fleet
Hans Bodine, CEO - August 21, 2019
As the small business leasing experts, Carlease specialists have years of experience working with clients in the growth-stage of their businesses and their fleets. And the one feeling we encounter most often is caution! Search for information on how to grow and scale your fleet, and the piece of advice you see most often is to take it "slow and steady". And this age-old proverb is certainly sound advice, especially when considering an important financial decision that will impact your business. But is there such a thing as too slow? And can growing or scaling your fleet too late adversely affect your business, causing you to leave money on the table or to lose your competitive edge? What is the optimal length of time to possess a fleet vehicle before rotating it out of use in favor of a newer model?
The first thing to note is that there's a difference between growing your fleet and scaling your fleet, and that rotating vehicles in and out of use is a common and necessary practice in both. Businesses that remain consistent year-round have different needs than seasonally affected ones, like construction, landscaping, and delivery businesses (the holiday rush anyone?). And much like growing too slowly, growing too quickly can adversely affect your business as well, leaving you strapped for capital, and leaving valuable fleet vehicles idle and losing money. So how best to build a growth plan for your existing fleet? Carlease has the answer.
And for more information on building and managing a fleet from the ground up, visit the first two posts in this series - Roadmap: Plan and Build Your Fleet, and Roadmap: Tools to Manage Your Fleet.
Growing and Scaling Your Fleet - Leasing
Growing a fleet is the relatively linear progression of accumulating a greater number of fleet vehicles to meet your business's demands, while scaling a fleet is a more dynamic model of growth that often involves a more measured growth rate based on market trends and seasonal business. And a key factor to success in either, is planning when to rotate your vehicles in and out of service based on age, frequency of use, and resale markets.
The first, and perhaps most important, thing to consider when growing/scaling your fleet is your business’s available capital and how best to utilize it, i.e. will you be buying or leasing your new vehicles? Now, it shouldn’t come as a surprise that we’re leasing evangelists... it’s in our name! But just for fun, let’s take a look a both options - regardless of whether you currently own or lease your fleet assets.
Leasing Fleet Vehicles
When considering a lease for your fleet, you’ll encounter two options, open-end leases and closed-end leases. Depending on how your business plans to utilize the vehicles, a natural selection will present itself. If you have questions about both options, the leasing specialists at Carlease can provide you with answers.
Open-end leases: This type of leasing offers your business the most freedom, but also a slightly higher inherent risk. While you’re not bound my mileage restrictions, you’re subject to market fluctuations and your vehicle’s resale value at the end of the leasing agreement. At the end of your lease, the vehicles go up for sale. If the sale generates a higher profit than the vehicles’ preset residual value, the lessor is required to pay you the difference (a win!). On the other hand, if the sale is of the vehicle results in a loss, your business is required to pay the difference to the lessor. This option is ideal for business who will need longer leases and a greater freedom to control their own mileage limits.
Closed-end leases: This type of leasing is a fixed term lease, i.e. a lease with a predetermined end date and predetermined yearly mileage. It offers less flexibility for your business, but often comes with lower monthly payments and significantly lower “risk” at the end of the lease - provided that you don’t cause excess wear and tear on your vehicles or go over the predetermined mileage limits. This option is great for businesses who are confidante they can stay within mileage limits and is looking for the latest tech and safety features on a more frequent basis.
Buying fleet vehicles is a major capital expense that impacts your business’s debt-to-equity ratio, potentially making your company appear less attractive to future lenders. Leasing, on the other hand, requires a significantly smaller outlay of cash and can often be less expensive on a month to month basis. Leases are kept off of a company’s expenses, and payments can frequently be written off of one’s taxes. So even if you currently own your fleet vehicles, it would be a good idea to consider leasing as you begin to grow your fleet, rotating your current inventory for newer, more fuel-efficient models. This will also position your company to better scale its fleet based on market trends. And as newer models enter the market, your business will be on the cutting edge of safety and fuel efficiency trends as you cycle out vehicle coming off lease for their current counterparts.
BUT, if you’re looking to purchase vehicles, and you have the capital, there are a few things to consider.
Growing and Scaling Your Fleet - Buying
As one of the most expensive pieces of equipment your company will likely purchase, it's a big investment - and one to consider carefully! If your business is considering purchasing vehicles to add to your current fleet, you have two options to choose from: purchasing new or purchasing used. There are benefits and drawbacks to each.
Buying Fleet Vehicles
If you’re considering purchasing new vehicles, you must have excellent credit and be willing to take on a considerable amount of debt. Hefty down payments are required on all new vehicles and looks unfavorable on a balance sheet as your company's debt climbs. Thankfully, new vehicles come with a slue of new safety features, tech, manufacturer warranties, and the latest fuel efficiency advancements. And because you own the vehicles, you don't have to worry about mileage limits and excessive wear-and-tear - it's your property!
If you’re considering purchasing used vehicles, it’s imperative that you secure all maintenance history records on the vehicles to avoid hidden issues that may crop up later in the vehicle’s life. While less expensive than new vehicles - sometimes by a lot - they can hide a host of problems that won't present themselves until farther down the road. And depending on where you source your vehicles, you may be overpaying for them. But again, purchasing the vehicles allows your business to do what it wants with them.
Buying Vs. Leasing
Ultimately it's up to you and your company to best decide how and when to grow your fleet - we can only offer our advice. If you have the capital and are looking to own fleet vehicles you can keep for many years, buying is the right solutions for you. If you're looking to keep initial costs low, secure fleet pricing (regardless of the number of vehicles you need), rotate your vehicles for newer, more efficient models every 3 - 4, and keep your debt-to-equity ration low - leasing through Carlease is a great choice.
Our leasing specialists often find that companies in a growth stage are often cash strapped and have better uses for funds than spending a large sum on purchasing fleet assets. As such, we've been able to save businesses time, money and hassle building out a lease plan that maximizes their business's resources - and we can do that same for you.
Working with Carlease
We know it’s an exciting prospect, growing your fleet and your business, and you want vehicles that will work just as hard as you do. Thankfully our leasing experts are here to help. They will work with you to come up with a manageable fleet growth plan, and help you select vehicles to maximize your resource now, and down the line. When you’re ready to grow or scale your fleet, your trusted Carlease specialist is with you every step of the way.
When you work with Carlease, you can be assured that you're getting the ideal lease plan for your business, at a price that's right for your budget. Carlease works across all makes, models and lenders to ensure our clients are getting the best deals at the lowest payments. Ultimately, our leasing specialists are here for you and ready to answer your questions. Reach out to us today!
Visit the final installation of our Roadmap series - Roadmap: Rotating Fleet Vehicles.