Things to consider when determining whether to buy or hire your business van


Things to consider when determining whether to buy or hire your business van

 

Wondering how to get your business on the road or just reviewing your options? This guide looks at the costs and methods at each stage of a van’s life-cycle – all the way from acquiring your van to getting rid of it. Knowing what’s involved over a van’s life-cycle will help you work out its ‘true cost’. The ‘true cost’ of a van is something you can then use to more accurately compare ownership to hiring your van.  

  

Getting your commercial vehicle (the start of the van’s life-cycle)

 

Capital Outlay

Many businesses feel that ownership brings increased control. And the truth is, it does. However, ownership is not without its challenges, and it’s these challenges which can spiral out of control. One reason for this is that purchasing a vehicle requires capital outlay. The amount of capital outlay depends on the type of vehicle, how old it is and whether you need to use a business loan. Because of the capital outlay, funds are tied down in your vans and unable to be used for things like growing your business.

 

Age of vehicle

Older vehicles are generally cheaper, but they also tend to need more maintenance. It is also likely that an older van will not be as fuel efficient as a newer one. Going for an older van because it’s cheaper could mean paying more over time. When you factor in the cost of maintenance and fuel efficiency, choosing a newer van could mean making some savings over time.  

There’s also the fact that the appearance of a van will contribute to how your business is perceived. Old and tired vans will not impress customers or drivers as much as a van that is in pristine condition. Read more on this here.

 

Euro 6 compliant? (Age of vehicle continued)

If your van meets the emissions standards of Euro 6, it could save you money on ULEZ and CAZ charges. Take a more in-depth look via in our post on the impact of ULEZ and CAZ on UK businesses.

 

Fuel Efficiency

Less efficient vehicles are going to cost more in fuel, especially if they will be used for high mileage. In fact, a difference in just 10mpg can increase costs by £1000 a year – for every 10,000 miles. Here’s a breakdown of the maths:

  •  Gallon = 4.5 Litres (rounding down)
  • Avg cost. £1.31 for Petrol and £1.35 Diesel (using BBC fuel calculator as of 20.11.2018)
  • 20mpg to 33 mpg = 200 gallons difference over 10,000 miles.
  • (200 gallons x 4.5) x £1.31 = £1,179 savings.
  • The savings in fuel are even more stark in lower brackets of MPG – take a look at the ‘MPG illusion’.

 

Customisation

When buying or hiring your van, these customisations could come at an additional cost

 

Maintaining your commercial vehicle (Middle of the life-cycle)

 

Overall costs of maintenance to your business will increase with fleet size. Servicing, tyre changes,  and road tax are just some of the things to consider. Here are some costs of maintenance that can easily be overlooked.

 

Downtime

The cost of replacement vehicles, parts, labour, and the time it takes you to solve the issue can all add up. Stats from The Society of Motor Manufacturers and Traders (SMMT) show that the average age of scrapped vans is 12.6 years. Based on usage, many businesses will be incurring the costs of maintaining their vehicles and downtime. Here’s a breakdown of the average costs found in a RAC survey:

£500 a day x routine down-time of 1.5 days = £750.

 

MOTs

The MOT test results between 2016 to 2017 show that the initial fail rate for commercial goods vehicles was just over 45%. Older vehicles are generally more prone to faults and require yearly MOT tests.

 

The law and regulations on heavy payloads

Overloading causes strain on your vehicle and can increase chances of breakage. This strain on your vehicle may not only result in higher maintenance, it is also likely to be against the law. The DVSA stops around 15,600 vehicles each year. 83.9% of the vans stopped in 2013/14 were given a ‘prohibition’ for being overloaded. Penalties for overloaded vans start at a £100 fine rising to court summons and impounding of the vehicle.

You can easily avoid these penalties by choosing the right type and model of the vehicle for your needs. If it’s possible that your needs could change, the right hire option could give you the flexibility to change them.

 

 

Getting rid of your commercial vehicle (End of the life-cycle)

 

Depreciation

Upon leaving the forecourt, a new vehicle is liable to losing a portion of its value due to depreciation. Depreciation continues from that point at a rate of around 20% per year (based on an average of 10,000 miles per year). If you own a vehicle and you are considering selling it, depreciation should be factored in to work out the return on your investment.

 

Method: Disposal of vehicles

The time it takes to get rid of your van can present its own challenges, particularly if staff costs are involved. As such, many businesses will choose the easy route in offloading their vehicles. The method you choose to dispose of your vehicle will affect your return.

 

For example, auctions are a common method for businesses looking to sell their vehicles, but it is unlikely to provide the best return - 

 

Alternatives to ownership

 

Typical LCV Rental/Hire Contract

The costs can vary depending on the contract. Here are some examples of additional costs that may/may not be covered in your contract:

  •  Servicing and Maintenance
  • Excess mileage. The exactamount will usually be in your contract and is often charged per mile.
  • Early termination
  • Damages to the vehicle – standards can be high. There should be a clear guide on ‘fair wear and tear’.
  • How do Northgate’s hire options differ from this? Jump to How Northgate can help.

 

 

How Northgate can help?

 

We provide a number of hire options and services that could be the right fit for your business. After using the above guide to work out the ‘true cost’ of a van, you can work out whether hiring a van from Northgate is financially savvy for your business. Here are some of the advantages to hiring a van with Northgate:

  • Single simple monthly cost with everything included except insurance and fuel.
  • UK Network of service centres to ensure that all vehicles are kept on the road.
  • Reduced downtime with mobile servicing, replacement vehicles and AA breakdown cover as standard.
  • Maintenance, servicing and road tax are included.
  • Depending on a credit check, you might not have to pay a deposit.
  • Vehicles are regularly refreshed.
  • Monthly payments, so your capital won’t be tied down.

 

 

Summary

 

Working out the ‘true cost’ of a van will enable you to compare whether buying or hiring is better for your business. We’ve broken down all the above into three simple formulas to work out the costs of ownership.

 

  • Cost of getting a commercial vehicle(s):

Number of vehicles x (Capital Outlay + Age of vehicle + Fuel Efficiency + Customisations 

 

  • Unpredictable costs of maintaining commercial vehicle(s):

Number of vehicles x (Servicing/Maintenance + vehicle replacements + time)

 

  • If you own a commercial vehicle(s), use this formula to work out the residual value of your vehicle more accurately:

Number of vehicles x (Potential return – depreciation – method: disposal of vehicle)

 

If you’re looking to work out the costs of hiring a van, why not get in contact? One of our van experts can provide you with a quote for one simple monthly cost with everything included (except insurance and fuel).

 

Created: 31/12/2018 14:06:46

Share this post