Cash Flow vs. Financing: What’s the Best Way to Purchase a Company Car?

When it comes to acquiring a company car, ABN holders often face the decision of whether to pay in full using business cash flow or opt for financing. Both options have their benefits and potential drawbacks, and the right choice depends on factors like cash reserves, tax considerations, and long-term financial goals. Understanding the implications of each approach can help business owners make an informed decision.

Using cash flow to purchase a company car outright eliminates the need for loan repayments and interest costs, making it a straightforward option for businesses with strong cash reserves. This can also free up credit lines for other business needs and reduce overall debt. However, tying up a large amount of cash in a single asset could impact liquidity, leaving the business vulnerable to unexpected expenses or investment opportunities.

On the other hand, financing a company car allows businesses to preserve working capital while spreading the cost over time. Options like chattel mortgages, hire purchases or leasing agreements can provide flexibility in repayments and potential tax benefits, such as GST claims or depreciation deductions. While financing comes with interest costs, it can be a practical choice for businesses that need to maintain cash flow for day-to-day operations or future growth.

Ultimately, the best option depends on the business’s financial health and priorities. ABN holders should consider their cash flow stability, tax implications, and long-term business strategy before deciding. Consulting with a finance broker can help explore financing options and find a solution that aligns with the company’s needs.

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