Having a company vehicle for your startup is a popular perk to offer employees. Not only does it prevent wear and tear on your personal vehicles, but it potentially saves the company money in terms of mileage reimbursement or travel expenses. To get your startup off the ground, you’ll need to meet potential investors at times and places convenient to them. A company car makes this easier to facilitate. Before you invest your capital in a down payment, here are three things to consider before you buy.
Budgeting for It
Purchasing a new car is a huge investment that may lock up precious capital from your startup. Buying a car outright with cash may be too big a risk for some startups that will opt for financing instead. You’ll also want your finance department to run the numbers on the cost of ongoing maintenance as well as insurance. Understanding insurance coverage is necessary as depending on how the vehicle will be used, you may need to purchase extra coverage or plans, such as gap insurance. Additionally, you may also want to brand the exterior of your company vehicle to help supplement marketing efforts to increase your brand awareness or generate business leads.
What Happens in Case of Accident
Determining who is at fault for an accident in your company car is only one thing in a list of many that will happen. If the auto insurance is in the company’s name, generally speaking, damage to the car will be paid for by your provider. You should also consider employer versus employee responsibility and who will be held at fault. If the accident is a result of something that is considered part of the scope of employment, then the employer can be held responsible. There are many ramifications for this scenario that you should think about before jumping headlong into buying a company car.
Tax Implications of Providing a Company Car to Employees
Some startups provide the perk of a company car to entice people to come work for them as a trade-off for a lower salary or other benefits. However, personal use of a company car often has income tax implications for the employee of which he or she may not be aware. Additionally, each employer is responsible for both properly reporting the value of any of these perks to the IRS and providing the appropriate statement to the employee.
Owning a company car for your startup has many positives and some negatives. While there are many risks involved, it’s always important to take a comprehensive look at your company, both in terms of financial capability and personnel, to determine if buying a new company car is the right choice.
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