Small business owners constantly find themselves wearing many different hats throughout the course of a day — all in the name of maximizing efficiency and increasing profitability.
Yet for many business owners, the fleet is often an afterthought — a mere line item within an operating expenses budget. Within a small business, the fleet management role is typically assigned as an employee’s secondary job or just another task for the human resources department to handle.
And with many other tasks requiring the full attention of a small staff, it’s no surprise that fleet management typically falls to the bottom of the to-do list.
However, proper fleet management can cut fleet-related costs for small businesses. Whether completed internally or via a partnership with a fleet management company, simple tasks such as minimizing depreciation, streamlining fuel spending and managing maintenance costs are important cost-savings opportunities.
A Depreciating Asset
“I’m going to run it until the wheels fall off.” It’s a phrase often heard when a small business owner discusses a company-operated vehicle, but it can have severe consequences.
Without properly maintaining fleet vehicles and accounting for necessary expenses, small businesses can end up spending nearly double the vehicle’s purchase price on maintenance costs and simple depreciation.
Depreciation isn’t thought about often, but it is one of the largest expenses in a company’s total fleet spend — about 40% regardless of whether vehicles are owned or leased. Therefore, it’s important for small businesses to operate their vehicles as efficiently as possible to maximize their return on investment.
Fleet management professionals should begin by evaluating a vehicle’s total lifecycle costs. The IRS has set a standard mileage rate of 56 cents per mile, which has been determined as the fixed and variable cost of operating an automobile for business purposes.
A fleet management company can help businesses achieve operating costs significantly lower than that — simply by identifying the appropriate make and model for their business needs or by determining that leasing might be a better option than owning.
In that case, business owners might find that a more realistic target for total lifecycle costs is as low as 38 to 42 cents — up to 33% lower in costs.
Streamlining Fuel Spending
With fuel costs generally making up 36% of a fleet’s budget, this is considered the second largest area of spending. Typically, small fleets will provide purchasing cards (P-Cards) for employees to use at the pump. Or the fleet manager may make fuel agreements with local oil companies or gas stations.
However, these arrangements leave a lot of room for potential fraud and overspending. To avoid this, companies should prioritize the development of a fuel program.
By implementing fuel cards — with more controls in place than traditional P-Cards — companies can monitor fuel spending and usage. Each fuel card is aligned with a specific vehicle and drivers are required to insert a driver-specific PIN.
Additionally, drivers have to insert the vehicle’s current mileage at each fill-up. By tracking the mileage, the fuel card system alerts management when the amount of gas being pumped is too high.
Or the card can work as a fraud protection tool. For example, if a vehicle’s average MPG is lower than the average for that specific make and model, the card could help identify if that driver is dispensing fuel into another vehicle.
Fleet managers should educate employees and consider providing incentives to help with adopting a fuel program. For instance, by highlighting the financial impact of idling, businesses could eliminate the loss of several gallons of gas every day per vehicle.
Managers could show employees how much money is being spent each hour when idling and then complement this effort with incentives — such as rewarding employees with a percentage of their savings at the end of every quarter.
Managing Maintenance Costs
The older its fleet, the more money that business will spend on fuel and maintenance costs. But the price of making repairs can be controlled by implementing a maintenance repair policy.
Many times, small fleet managers don’t have a policy in place and just reimburse drivers after they have handled repairs on their own. But if business ownership is not involved in the process, how can companies ensure they’re getting the most for their money?
A maintenance repair policy can include everything from setting out-of-pocket driver limits to requiring preapprovals before payment to identifying a single repair shop for handling all the maintenance needs.
Without proper controls or monitoring, an employee could purchase a higher-priced tire over a more economical choice or reapprove a preventive maintenance repair that was recently completed.
Furthermore, routine maintenance like oil changes may not be completed regularly, which reduces the vehicle lifecycle and potentially disqualifies specific parts from warranty coverage.
Small fleets can turn to fleet management companies to ensure the best costs are being negotiated, repair records are maintained and monitored and eyes are kept on all warranties. Regardless of whether a small fleet partners with a management company or implements more internal controls, business owners need to make sure that policies are in place.
Changes to Procedures and Behavior
In addition to tracking depreciation, managing fuel costs and implementing maintenance programs, companies should consistently evaluate driver behavior. Fleet management companies provide several programs to help, including toll and violation management, safety monitoring and accident prevention.
By identifying poor driver behavior, companies can aim to make improvements, mitigate risk and decrease unnecessary expenses like accident repairs.
One of the most common reasons for fleet overspending is the fact that it’s easy to be overwhelmed by all the “to-do” items in an area that isn’t the company’s specialty or core focus. But simple changes by both management and staff can result in cost savings.
Business owners should begin by obtaining and evaluating key data: What is the fleet’s total lifecycle cost? What’s the average cost of fuel? How are maintenance costs and driver activity monitored?
Based on the data obtained, management can then move forward by identifying specific areas in need of improvement and the available options to help make the necessary adjustments.
About the Author
As the director of business development – small business and vehicle solutions for GE Capital Fleet Services, Travis Mjolsnes leads a national sales team focused on assisting small- to medium-sized companies with their vehicle leasing and service needs.