Leaving aside questions of whether the “Cash for Clunkers” legislation currently up for additional funding is good for the economy, it presents a good opportunity for re-evaluating your business use of vehicles.

There are three main questions for business owners in deciding whether trading in an old vehicle is worth it:

1. How much money do you save in gas, for a more fuel-efficient car, in relation to money laid out for purchasing it?

2. Can you depreciate the value of the new car as a deductible business expense, thus offsetting the purchase price with additional tax savings?

3. How much does your more fuel-efficient vehicle reduce your environmental impact (and is this part of your branding)?

Gas savings
The first question is simple math, made not-so-simple by the fact that gas prices are unstable. If your use of the vehicle remains roughly the same, and so do gas prices, then you can use the difference in miles-per-gallon between the old and new vehicles to calculate how much you will save over the next 4-5 years of use.

But the future of gas prices is hard to predict. As EnergyTechStocks.com reported in March, “noted consulting firm McKinsey & Co., Saudi oil minister Ali Al-Naimi, and “dean” of oil analysts Charles Maxwell of Weeden & Co. all say that an oil price shock that hits between 2010 and 2013 now appears all-but-inevitable.” Run the numbers with gas prices returning to their $4-$5/gallon highs, and see what you will save.

For a specific comparison of two similar vehicles, take a look at our earlier post: Fuel Efficiency – good for me, good for the economy.

Depreciation
If your small business has an older, inefficient vehicle that you need for business purposes (things like making deliveries, or getting from one job site to another), you should have been deducting expenses for it already, either directly as mileage/insurance, etc., or by purchasing the vehicle as a business asset and depreciating it.

If you have been listing depreciation as a business deduction, your older vehicle may be close to losing its tax write-off value for you anyway. Buying a new business asset which resets the depreciation available may make sense, especially when it comes with greater gas savings.

Of course, buying a newer car also means lower maintenance and repair costs, at least initially, and fewer repairs means less time your vehicle is out of commission, causing you lost or delayed sales.

TurboTax has a nice overview of Business Use of Vehicles, but as with any major purchase for your business, do remember to consult your accountant.

Environmental Impact
How important is it to you, personally, to reduce your carbon footprint? How important is it to your business brand? You should realize that your company car sends a message, especially if it displays your logo. If your target market includes people who are making their own efforts to live and buy “greener,” walking your environmental talk may be a smart business move.

Real impact versus perceived impact

Eric Morris, a researcher at UCLA’s Institute of Transportation Studies and an urban planner, gets into the nitty-gritty of environmental impact in “Buy an SUV, save the planet.” He analyzes the relative environmental cost of driving the following vehicles:

- a 2009 Toyota Prius (est 46 mpg)
- a 2009 Toyota RAV4 2WD (24mpg)
- and a Land Rover Range Rover Sport (14mpg)

Surprisingly, he finds that “upgrading the inefficient S.U.V. to a more efficient one would save a lot more fuel — 372 gallons per year — than the 250 gallons saved from the switch from an efficient S.U.V. to the most fuel-efficient car on the market.” This is good news for business owners who need lots of cargo room in their business vehicle. How does he get there?

“Let’s consider not miles per gallon but gallons per mile (or, to make the numbers prettier, gallons per hundred miles). By this metric, we get an unclouded picture: the Prius uses 2.17 gallons per hundred miles, the RAV4 uses 4.17, and the Range Rover uses 7.14.”

This comparison is useful to anyone who bought a large vehicle for business use under the Bush-era business SUV tax break incentive. Originally intended for small family farms purchasing pickup trucks and cargo vans, this tax break applied to any vehicle over 6,000 pounds, and was also available to business owners purchasing SUVs in that weight class, which include some of the most fuel-inefficient vehicles on the road.

However, there’s still the issue of customer perception. This real environmental benefit is less visible than the green halo around the Prius brand, so if your concern in upgrading is “greening” your brand, be prepared to do some explaining.

For those of you who attended Monday’s Back to the Fundamentals webinar, you heard a lot of references to some websites, books and blogs.

For the reference of those people looking for more information and for those of you who weren’t able to make it to the webinar, I’m going to put a reference list here.

If there are any that I fail to include here, please leave a comment and I’ll track it down and get it for you.

Tim Berry

Blogs : Planning, Startups, Stories, Up and Running,  Tim’s posts at HuffingtonPost, Tim at Anita Campbell’s Small Business Trends, Planning Demystified at AllBusiness.com

Books:  The Plan-As-You-Go Business Plan book and website, Three Weeks to Start-up

Slides: Download the slides from Monday’s webinar as well as other presentations Tim has given over the years.

The webinar itself will be available for download starting today at our video site   eta: This link is fixed now, sorry about that!

Resources: Palo Alto Software products,  Business and Marketing calculators, more planning video’s.

I hope that was helpful, again, if I’ve missed anything or you’re wondering about a particular resource or website, just comment!

‘Chelle Parmele
Social Media Marketing Manager
Palo Alto Software

Interesting article today on Businessweek.com about the importance of recognizing your business costs and getting them under control now verses later, when it could be too late:

“…by recognizing the problem early and making moderate reductions, small firms can avoid more severe cuts later on, financial experts say. Companies that ignore warning signs can erode their profits with rising costs, and those that borrow to meet those costs can wind up insolvent.”

How many of you are looking at your personal or household budgets and cutting expenses? Change vacations plans? Did you dump those magazine subscriptions that you don’t need?

Why wouldn’t you do the same thing at your business?

The answer is, you would! No question. Right?

Now, here’s the next question. Are you being smart in your cuts, or are you looking at the highest costs and slashing them without really looking down the road and seeing what the cut is going to do to you later on? How many of you immediately shut down your advertising campaign? Canceled all your trade show appearances? Eliminated a position or two on your staff?

Let me say this again. Cutting your business costs now verses later is a good idea… but making sure you make the right cuts is going to make the difference between having a strong and functioning business and a “just hanging on” business down the road.

You are in business now because you made smart choices. Keep that up. Pull open your budgets, study your cash flow, your planned vs actuals, your forecasts. Adjust them for the good, the bad and the really really ugly. Be brutal in your projections and then look at your costs.

Make a plan. A good plan.

Now is not the time for guess work and hasty decisions. You can’t afford it.

‘Chelle Parmele
Social Media Marketing Manager
Palo Alto Software

Have you signed up for the Back to the Fundamentals webinar with Tim Berry? There’s still time! Register Right Now by clicking this button

There’s a lot of talk in the media and the blogsphere about the economy and how businesses will be reacting to the climate. Many are guessing there will be layoffs coming in the next several months. PR and Marketing departments are tightening their belts and some companies are cutting those departments altogether. Pretty scary times. But they don’t have to be.

If you look carefully, you’ll find a small but very vocal group of business advisers and business owners who are being smart and not reacting blindly to what is happening in the world.

They’re sitting down with their budgets, their management teams and consultants and really looking at what needs to happen to ensure their businesses survive.

If business is slowing down, what are you doing to ensure your customers keep coming back? If your competitor slashed their advertising budget, isn’t this the time for you to add a couple more budgeting dollars to pick up where they’ve left off? That expensive marketing tool or reporting system that costs you thousands of dollars a month – have you checked to see if there’s a low cost alternative that does pretty much the same thing?

Don’t doom your business by reacting too strongly to what’s going on. Sit down and make good decisions about where your money is being spent and where it will do even more good in the future.

Please join us November 17th, 2008 for a special webinar by Tim Berry on the importance of going Back to the Fundamentals of business.

Sign up for Tim Berry’s Webinar!