Upon determining the need for additional commercial equipment, we see business owners often struggling to decide between purchasing new or used. With a little proactive thinking about your business, how you use the equipment and a few financial implications, you can have a plan that fits your needs.
Start at the End
One of the biggest mistakes business owners make is not looking into the future when making a purchase. How do you dispose of your current equipment when it’s at the end of its useful life? This is a hidden and often large expense for many businesses. Trading in certain assets seems to be an easy solution, but can happen at deep discounts over the asset’s real market value. Selling equipment yourself can be time consuming and ineffective. For equipment without a strong secondary market, like technology, the assets are often just cast away. If business owners understand the financial impact of end of asset life decisions first, better decisions can be made when evaluating buying new or used.
Understanding that the pace of technology is moving so fast in your business that your technology won’t be able to keep up in three years is another item of importance. Or, maybe you can use that machine tool in a light use application and it can still be doing the job 12 years from now. Also, it’s important to consider what kind of ongoing expenses the equipment may present. Typically, maintenance expenses increase exponentially as age/hours/miles accumulate on the equipment. So, while used equipment may offer a deep discount at purchase – you might pay for it later with maintenance or other expenses. Developing a clear view of how you use each important equipment area in your business is the best starting point.
Is there a big down payment required? Are you trying to pay cash versus financing? What kind of monthly financing payment can you afford? If there weren’t cash limitations, most of us would buy new all the time. But, this is the real world. You’re growing a business and investing precious budget dollars and cash on hand in equipment that depreciates just doesn’t feel like the best way to deploy capital. If you have a high usage requirement and/or quick technology turnover, financing new equipment is usually the best bet. If you have a tight monthly budget, little cash on hand and/or a long usage cycle, acquiring used will likely be the best option for your company.
Whether new or used, you can acquire equipment for little to no money down, with an affordable monthly payment. This payment becomes a fixture in your budget, so when the asset reaches end of life, you just replace the old payment with the new payment for the replacement equipment. It also creates an easy way to “scale up” your company as you grow. Just adding another monthly payment or two to support new business is far easier than coming up with big cash to buy equipment before the revenues from the business start rolling in.
So, which method is right for you? Take a look at how you dispose of the equipment, how you use it and then apply some financial fundamentals and you’ll easily discover the right path. And when it comes to leveraging equipment financing – new or used – we can help. At LEAF, we make equipment more affordable. Our customized finance solutions solve real problems – like understanding when to buy new versus used equipment for the best financial impact.