This blog post is going to begin a 3-part series on the topic of buying new vs buying used equipment. Equipment acquisition is a big deal for businesses. Whether you are in the restaurant business, the construction industry, auto repair, printing, security system installation, etc.—it is important for your organization to have what it needs to be successful. You can’t run a restaurant without a dishwasher, and you can’t run an auto repair shop without the right tools.
At Equipment Street, we offer our members the ability to buy or finance new and used equipment but as the buyer you need to consider the are pros and cons of each option. In the end, you’re going to have to find a way to acquire what you need—but should you buy (or finance) new or used equipment?
Buying new definitely comes with some upsides, though it also comes with its share of negatives. A lot of companies actually prefer to buy new if they can help it, as new equipment can usually be expected to have a longer life-span. You also know that new equipment has not been mistreated or neglected in the past, as it has never had another owner.
But new equipment is also more expensive, and it can be more difficult to acquire because of this. Companies that simply cannot afford to buy new might consider buying at least some of their equipment used—especially if it is equipment that is not going to be utilized a lot. If the company policy is to only buy new and at times there are cash flow constraints, then utilizing lease or working capital financing is a good path to follow.
Here are the basic pros and cons of buying new.
- New equipment usually offers you the latest technology
- It typically comes with a basic warranty plan
- Sometimes, new equipment comes with after-market service included with the base price
- It offers you the latest features which could deliver time savings or new revenue opportunities
- You will know exactly where it has come from and essentially what to expect (you will know that it wasn’t scavenged from a flood or ‘fixed up’ so that it would just run long enough to sell, etc.)
- It will generally last longer (you can expect more as the unit depreciates since you are acquiring it at the beginning of its life)
- New equipment is typically more expensive
- If you have limited funds, you might be required to compromise on brand selection if all that you are interested in is buying new
- If you buy new equipment that is only going to be used once-in-awhile, you will have a pretty serious amount of money just sitting in one place when it is not being used—a cost that some companies can’t afford
- If a new model or technology becomes available, it will be difficult to upgrade or transition due to your large investment in the existing piece of equipment
- Limited ability to negotiate price discounts
Buying used is not without its upsides as well. Of course, there is also the ‘unknown’ element whenever you buy used. Unless it is a very special situation, you are generally not going to get any guarantee or extended warranty. The equipment might outlast even newer models, or it might break down in a week—so the unpredictability is also an issue.
On a good note, it could provide your business with what you need at a much lower cost—though it could also cost you more in the long run if it breaks down repeatedly or causes you delays in production. All in all, buying used is very situational. It can work out well, though is usually not the first option that companies like to consider.
A Quick Note On Refurbished Equipment
It is important to note that there are a lot of dealers and manufacturers out there who also sell refurbished equipment. Refurbished equipment is different from equipment that you would label as used. Used equipment is generally equipment that you are literally buying from either a used equipment dealer or from a previous owner. It is usually untested, comes with no warranty, and is ‘as is’ for all intents and purposes.
Refurbished equipment, on the other hand, is equipment that is pre-owned but that has been “re-tooled” to be almost as good as new. It’s normally put through rigorous testing, comes with a warranty, and also usually comes with a condition report that will tell you specifically where the item has been, what parts have been replaced, how often it was maintained, etc.
Buying refurbished is, for all intents and purposes, basically the same as buying new from an equipment quality perspective. The cost is usually lower on refurbished items than it is on newer items, though you can expect to pay more for refurbished equipment than for equipment that is just ‘used’, or ‘as is’.
Here are the basic pros and cons of buying used.
- Buying used equipment is less expensive
- It can enable you to buy more equipment using less capital
- It is usually not as difficult to obtain since you might not need to get a loan for it
- Some companies lease or even finance preowned equipment, which can save you money and, once again, make the acquisition process easier
- You typically have more price negotiation power
- Utilizing this type of purchase can help you meet short term equipment needs if you are in a limited cash flow position
- Most used equipment typically doesn’t come with a warranty*
- Theirs is a level of insecurity as to how long the equipment will last
- There is no way of knowing where it has been or how it was treated before (it could have been left out in the rain for a month, etc.)*
- Even if the tool or piece of equipment looks good on the outside, you could face an unexpected breakdown that isn’t covered by a warranty or maintenance guarantee*
- Used equipment does not, as a general rule, last as long as new equipment
*These are not necessarily always true. If you buy refurbished, you will usually get a warranty, as well as a full condition report. You will also probably not be facing unexpected breakdowns that are not covered by a guarantee. Some dealers may provide some type of warranty on used equipment but it adds to the cost of ownership.
Of course, there is a lot more to this discussion—and we will continue it in the next blog post. Make sure to check back to read part 2 of our 3-part blog series on buying new vs buying used.