Most businesses depend on equipment to help produce their product or service. It is not unusual for business owners to contemplate acquiring new as well as used equipment. There are advantages and disadvantages to both options, but understanding the financial impact on the business, the life span of the equipment, and disposal options can help with decision making.
The financial impact on the business is an important consideration. Purchasing new equipment may require a large down payment, while financing can result in monthly payments. Typically, businesses that have equipment with high usage or a quick turnover in technology may benefit most from new equipment financing. Used equipment may be best when there is little cash on hand and a tight monthly budget. Whether selecting new or used tools, equipment financing typically involves a low down payment and reasonable monthly payments.
Technology is changing rapidly, which means some tools may be outdated in a few short years. This is a prime consideration when selecting new gear because the acquisition process is likely to be repeated. Tools less reliant on technology may function well for a decade or more, although maintenance costs are likely to increase over time. Both types of equipment may be present in one business, making it crucial to have a clear view of how each piece is used.
The disposal of tools that have met the end of their useful life may not be the first thing business owners consider when looking at new or used equipment. However, it is a major consideration because it can be a large expense. Some assets can be traded in, which is a simple solution but may come at the expense of a deep discount in real market value. Some items, such as technology, may not have a strong secondary market resulting in assets that have little or no worth. Developing an end of asset life plan can help business owners decide between new or used equipment.
Tools of one kind or another are essential to any business. Depending on the type of business, equipment may last for a decade or more or need to be replaced in three years. The choice between acquiring new or used tools can be supplemented by considering the financial impact, usage, and disposal implications. Businesses are likely to have assets with differing technological and disposal needs making it sensible to have a clear understanding of the caveats of each item.