Switching to an allowance from company car program?
Your company has a fleet.
You’re getting sick of personal use piling up and cars not being treated well.
Maybe you have some doubts about accounting for those vehicle expenses yourself. Or have a suspicion that company cars for your sales reps aren’t the lowest cost option.
When looking for fleet alternatives, someone told you about their car allowance program. From the way they talked about it, it seemed super simple and easy to run. Plus, no cars on the balance sheet anymore!
So what’s better, a car allowance or a company car?
What they didn’t tell you, is that while car allowances save you some hassle in program administration, there are better ways for you to make sure your team driving for work gets paid.
Fleet cars for sales reps? A thing of the past.
Your team on the road wants to drive something that fits their lifestyle.
They’re tired of the cookie-cutter, used cars. They want something that gets them where they’re going but is also a good environment to get their work done.
Here’s more from Iain Morris, who talks about his life on the road as an outside sales rep for electrical goods and equipment supplier, Rexel U.S.A.
Iain Morris, Outside Sales Representative, Rexel U.S.A.
And for you? There are a lot of other factors to consider.
With a company car program, those cars are going to be sitting ducks on your balance sheet.
In fact, with ASC 842 coming into effect, the shift on leases being recognized as capital instead of operating means a lot of new things to report on and measure.
With all that extra work, could you get away with fleet alternatives like having fewer company-owned or leased vehicles? Or even none at all?
Allowance: Don’t take the easy way out
An allowance may seem like the easiest thing when you’re tired of the fleet costs, maintenance, and time it takes to support.
Ahh, one payment a month and you’re done? Doesn’t that sound like a dream?
What if I told you there was a way you could have a low-maintenance program where your team is getting reimbursed the right amount for what they’re driving? Not just a random number that someone at your company picked out of the blue, but a number that includes all of the costs that go into driving: in someone’s area, based on how much they drive and what type of vehicle is needed to do their job.
Don’t believe me? Hear how Neil Beier, VP of Finance at Crescent Crown Distributing, made the switch from paying merchandisers and sales reps a fixed rate without tracking miles to a fair reimbursement for the use of their cars.
Ok, you want to toss your company cars. A flat amount for everyone is out.
What are you supposed to do?
Many companies we work with choose a Fixed and Variable Rate (FAVR) mileage reimbursement program for their drivers who put in over 5,000 business miles a year. For businesses with a passenger fleet for their sales reps, 5,000 business miles a year for one driver may sound crazy low.
A Fixed and Variable Rate program is a personalized mileage reimbursement program based on where your team lives and drives for work.
You’d be reimbursing your team for fixed costs like insurance premiums, license and registration fees, taxes and depreciation. And variable costs like gas, oil, vehicle maintenance and tire wear.
This means someone driving in Montana has much lower costs for fuel and insurance than someone in New York City. So they would most likely get reimbursed different amounts for driving. The more miles driven, the more the difference matters.
That sounds fair, right?
If you’d like to talk more about your options for getting out of fleet or fleet alternatives, we’d love to meet you.