This guide explores the reasons that business vehicles are an asset, but also the reasons they may be a liability.
More people than ever before are wondering whether their business vehicles are an asset or a liability. In traditional accounting terms, the answer is obvious. But when you take a more holistic approach, it isn’t as clear-cut.
When ridesharing apps first arrived a little over ten years ago, many people greeted them with excitement. The reason for this was that the full realization of these services would effectively eliminate the need for private vehicles. People could rid themselves of most of the financial perils associated with car transport and hand those risks over to another agency.
This episode, though, is far from unique. Many public projects, such as bus routes, trains, and trams try to do the same thing. The idea is to remove the risk of traveling by car by making the overall prospect significantly cheaper.
All this begs the question of whether business vehicles are truly an asset or something many people living in major cities would be best to avoid.
Asset side of business vehicles
People view business vehicles as an asset for various reasons.
For many, private motor vehicles have a business use. Owners need them to drive from site to site or from appointment to appointment throughout the day.
Cars used for commuting also loosely fall into this category. For many people, getting to work without a vehicle sitting on their drive, ready and waiting to go would be impossible.
Clearly, the business use of cars falls on the “asset” side of the equation because it enables income generation. Anyone who travels to a place of work knows the truth of this statement.
Similarly, in agriculture businesses, reliable equipment is crucial for productivity and profitability. However, purchasing machinery can be a significant financial burden. Renting from tractor dealers in Denver allows farmers to access high-quality equipment at a fraction of the cost, reducing expenses and providing flexibility, which enhances operational efficiency and profitability.
Potential For Income Generation
Cars also have the potential for income generation. Technically, any owner could sign up for a ride-sharing app and start making money from their vehicle immediately.
Having this asset in place offers the owner advantages. Unlike owners starting from scratch, those who already have a car and have paid for it or put down a deposit don’t need to raise additional capital.
The income generation of a vehicle can be significant. Many drivers earn around $15 per hour, which can be the little extra they need to perform financially.
Resale Value
Economically speaking, business vehicles also have resale value, which is the main reason bookkeepers put them on the asset side of the balance sheet. Individuals and businesses can sell their vehicles and generate cash instantly which they can then convert into other items they need.
Convenience
Finally, on the asset side, business vehicles provide a level of convenience that’s not available from other forms of transport. Cars are also more convenient than buses or trains for obvious reasons.
Therefore, the use-value or convenience factor of motor vehicles is high. Cars enable people to travel from A to B with ease, which might explain why they are so unrelentingly popular.
Liability side of business vehicles
On the flip side, many people view business vehicles as a liability, but why?
The Risks
Demand the Limit is a car accident lawyer who understands the risks associated with motor vehicle ownership more than practically any firm. The company sees dozens of people whose lives have been turned upside down because of business vehicle accidents.
“We know how car collisions can affect people first-hand,” the company says. “Countless people get injured on the roads every year in our state and many of them weren’t to blame. Most were obeying the rules of the road, minding their business, when something suddenly went catastrophically wrong for them.”
It’s events like these that put the reality of cars being a liability into sharp relief. While the possibility of injury exists on the bus, train, or plane, the harm done in cars per mile traveled is orders of magnitude higher.
“Our basic goal is to prevent car ownership from being a liability when someone else is at fault,” Demand the Limit reveals. “It’s about getting people the money they deserve so that they can continue to live dignified lives.”
The Environmental Impact
You can also view business vehicles as being a liability in terms of their environmental impact. While the external costs of driving a vehicle might not show up on loan repayments or in the form of higher bills, they still create damage in the natural world.
Ongoing Costs
Liabilities can also show up in the form of ongoing costs, which again is something that accident lawyers like Demand the Limit emphasize. “When someone is in a crash, you can’t look at the event in isolation. Instead, you have to view it going forward in time and try to unravel all of the problems and complications that might result,” the company says.
For example, business vehicles aren’t just an upfront cost. Instead, owners must pay repair bills, taxes, insurance, and maintenance. Keeping a vehicle on the road is notoriously expensive, even for people on relatively high incomes.
There’s also the “expected cost” of owning a car. This figure takes into account probabilities, too, meaning it factors things like the medical expenses that will likely arise from car ownership.
Depreciation
Finally, owners have to deal with depreciation. As business vehicles get older, they lose value rapidly.
Often, this situation isn’t a problem. The vehicle remains worth more than the loan, putting the driver in positive equity. However, some models can see their desirability tank quickly, putting drivers at risk of market forces. When the equity in the vehicle is negative, it is no longer beneficial to own the car, and the lender can’t make back their money.
Depreciation will happen whether you want it to or not. However, you never know which models will go down in value faster than the market anticipates. And it is these that can wind up costing you. Losing capital rapidly represents a loss.
Conclusion
Therefore, overall it is unclear whether business vehicles are an asset. Strictly speaking, you would enter them on the asset side of your personal balance sheet because of the resale value and any income you generate. However, you’ll also need to include depreciation on the other side.
