An issue business owners often face is whether to buy new or used equipment.
On one hand used equipment can be less expensive, but it’s not without risks. On the other, new equipment is generally more expensive.
When weighing the options as to whether to buy new or used equipment, it is critical to look beyond the question of price.
Buy New or Used Equipment – Do Your Research!
Many factors come into play, particularly if the use of the equipment is core to your business and the products or experience you provide to your customers.
The useful life of the asset is also important. Whether it is of a type that regularly needs to be upgraded due to changes in technology which may be needed to maintain your competitive edge or productivity.
To avoid later regret, doing your research and weighing up the pros and cons is critical.
To help you work through the process I have outlined some pros and cons of buying new or used equipment:
Pros of Buying New Equipment
- Provides access to the latest technology
- May improve productivity
- Achieve better turnaround times
- Reduced downtime due to breakdowns
- Warranty provides peace of mind
- Benefit from depreciation write off if used for business purposes
- Finance costs generally lower for new equipment vs. used
Cons of Buying New Equipment
- More expensive than used equipment
- If financed, can place a greater strain on cashflow
- The value of equipment may depreciate significantly in the first year or two
- May not interface with other older equipment used in the business
- Insurance costs are likely to be higher
Pros of Buying Used Equipment
- Lower upfront cost
- If financed, potentially less drain on cashflow
- Extended warranty may be available
- Can purchase more equipment for less cost
- Although repair costs may be higher than new equipment, this may be more than offset by the lower purchase price
- Much of the depreciation cost may have been borne by the previous owner
- Insurance costs likely to be lower than new equipment
Cons of Buying Used Equipment
- Can be difficult to find parts or have serviced
- Breakdowns may be more frequent & repair costs higher
- The useful life may be shorter
- How the equipment was used may be difficult to establish
- Limited or no warranty
- Finance costs may be higher and term shorter than is the case with new equipment
How to decide whether to buy New or Used Equipment
The key to a successful outcome, like all business decisions is to do your research.
Questions to answer:
- Do you expect to use the equipment over the long-term? If so, would new be a better option?
- What is the total cost of the equipment over its useful life? (Purchase price, repairs & maintenance, interest & fees if applicable, insurance etc)
- For both new and used equipment, what warranty, support, and parts are available?
- Would new equipment provide more productivity gains vs used?
- Has the second-hand equipment been well maintained and regularly serviced?
- At what point would the higher cost of maintenance and downtime make used equipment unaffordable?
- If finance is required, which option is the best from a cost and cash flow perspective?
Summary
As can be seen, many factors need to be taken into account when deciding whether to buy new or used equipment.
The key as stated previously is to do your research and weigh up all the pros and cons.
In my experience, you get what you pay for!
If you would like to learn more or discuss the financing options available, give me a call
