FD Insight: Get good mileage from your motoring spend
Putting vehicles on the road can be a serious business expense, complicated to manage and often difficult to predict over the long term. Yet they serve multiple purposes, including getting goods to customers, connecting employees with stakeholders and even acting as an incentive.
To get to grips with the pros, cons and costs of company-funded vehicles, we raised the topic at a recent FD Recruit – FD & CFO Conference to discover the challenges faced by the UK’s most successful finance directors, and to share their insight and advice.
Company cars have been a popular choice for decades, but recent legislation changes have made the picture much less clear. Companies can now buy vehicles for staff to use, or lease them, or encourage employees to purchase their own by offering an allowance. And all three have their advantages.
There’s far less involvement on your behalf to allow an employee to make their own purchase, though it’s worth setting at least some guidelines about age, size and state of vehicles. This allows the employee to do their own homework and take care of their own maintenance. Some individuals prefer this route, but it needs to be taken into account that car allowances are taxed as personal income, meaning others feel like they’re getting short shrift whilst doing all the legwork.
By shouldering the burden of running a fleet, companies can keep much tighter control over purchases, maintenance and other decisions. The cost is the expertise and hours required to run such a set-up.
Buying vehicles outright is often a smart move for cash-rich businesses, but others operating on smaller margins find that leasing is easier on the bottom-line. Not only are these deals often wrapped in with maintenance and management packages, but they spread the cost and can be cheaper than loaning equivalent amounts from banks.
Choosing the right fuel
After a vehicle’s purchase, the fuel that keeps it going is by far the biggest expense. And the choices are only getting more complex. It’s no longer a coin flip between petrol and diesel, hybrid and electric options are becoming serious contenders, too.
The truth is that there is no one best solution, as factors such as number of miles covered, type of driving (rural, urban or motorway) all change the equation. That means it’s not just a company-by-company decision, but individual drivers may find one fuel more efficient to another.
But with fluctuating fuel prices, tax incentives for clean vehicles and the government’s Energy Savings Opportunity Scheme, it’s never been more important to ensure that you’re running on the right stuff.
And it’s certainly worth paying close attention to electric vehicles. They’re going to be commonplace soon, with more than 7,000 charging points throughout the UK already. Plus, in addition to road tax exemption, the government is currently putting up to £5,000 towards the purchase of electric cars and £8,000 for vans.
It’s estimated that one-third of all accidents on the road happen on work-related journeys.
The Health and Safety Executive has been paying closer attention to this in recent years, holding employers accountable.
There are specialists for hire who teach safe driving and our FDs reckon this to be a worthwhile investment. From a finance perspective, accidents cost money to put right and they increase insurance premiums. On top of all that, a smarter driver is also more efficient, in terms of fuel, tyres and keeping their car in decent working order.
The problem many employers face is that individuals don’t like to be told they don’t know how to drive. Combat this by offering incentives to staff who can increase their fuel efficiency or improve their accident record. And, of course, fund the courses on their behalf.
It’s possible to motivate drivers to want to be better, while the savings make the process more than worthwhile.
Portraying the right image
Image is crucial, and when it comes to company vehicles it’s a fine balancing act. You’ve got more than one audience to impress.
The first is your staff. Our recent FD Incentives survey found that vehicles are a well-liked part of the remuneration package. Many employees expect and are drawn to packages involving including luxurious cars or generous allowances. You may be tempted to save money on vehicles, but don’t do so without considering the talent you may be turning off by offering less than rival employers.
The other audience consists of your customers and potential customers. It’s important not to turn up to meetings or be seen on the roads in shabby bangers. That’s going to demonstrate that your business is struggling. But neither can you go over the top. You can create resentment if you’re talking business, and costs, with a flashy vehicle in the carpark outside.
Company vehicles may pose complex problems, but by investing time and resources at the outset, there are huge savings and big benefits to be earned over the short, medium and long term.
Date Posted: November 26th 2015
Posted By: Phil Scott