Buying a new or used machine: a comparison of the advantages and disadvantages

The success of companies is not only created by first-class products and services. The professional handling of investments is also an important factor. This also includes the decision as to whether the required machines should be purchased new or used.

Both variants have their advantages and disadvantages. It is therefore important to weigh up the individual criteria carefully. The specific characteristics of the business also play a role in the decision-making process. This article discusses the criteria for new and used machines.

 

BUY NEW OR USED?

Investment decisions are an important part of a company’s strategic orientation and also have a lasting impact on the financial basis of the business. In particular, the purchase of high-quality machinery for production facilities or the expansion of the company’s vehicle fleet should be carefully planned.

Buy new or used? Based on the following criteria, entrepreneurs in the field of logistics and/or cost accounting can make a clear decision.

THE COSTS

Of course, the new price of machines and vehicles is generally higher than that of products purchased second-hand by a company. Nevertheless, it is worth taking a close look at the prices of used products.

This is because the vehicle market in particular offers attractive annual cars and one-day registrations that are significantly below the new price without any loss of quality. In addition, it may be the better option – for a start-up, for example – to finance a new purchase if the used purchase would have to be paid for in one lump sum.

Example: Acquisition of a machine as a new or used investment

• Option A: New purchase in ten installments of 10,500 / total amount 105,000 euros
• Option B: Used purchase at 80,000 euros

Of course, more is spent on a new purchase and interest is charged. Nevertheless, if finances are tight, it may make more sense to make the new purchase if, unlike the pre-owned option, it can be paid for in installments.

THE QUALITY

In general, companies value purchases that are of high quality and durable. New purchases are often automatically equated with better quality. However, this does not necessarily have to be the case.

It may well be that innovative products are not yet fully developed. It is therefore a good strategy to find out about the quality and any experiences of other users (via online portals etc.).

Good sources of information are:

• Expert forums
• Blogs
• Rating portals on the Internet
• Industry meetings
• Trade journals
• own internet research

Recommendations from partners can also play an important role in the selection process.

THE PERFORMANCE

Better performance is a concrete purchase argument that can often be satisfied by a decision to buy new machines or a new fleet. This is because the new product developments of the relevant manufacturers naturally focus on better performance, among other things, from which companies should benefit.

However, there are also used investments that offer the best performance, because there are many machines that only achieve their best efficiency after months or years. Incidentally, this is also a reason why many entrepreneurs or decision-makers are reluctant to replace such “run-in” machines, preferring instead to extend their useful life by replacing relevant parts.

THE TAXES

Business management and tax law aspects are closely interlinked. For this reason, investments should always be considered from a tax perspective.

The following advantages of buying new or used are significant in this context:

Advantages of buying new machines and vehicles:

• Significant increase in balance sheet assets
• Improved amortization options
• Strategic reduction in profit due to operating expenses
• Reduction of the tax burden

Advantages of buying used machines and vehicles:

• usually a lower purchase price
• This reduces the burden on the company’s liabilities
• Strategic reduction in profit due to operating expenses
• Reduction of the tax burden

Particularly in the case of companies that are required to prepare financial statements, the decision to invest should therefore always be made against the background of the presentation to investors and other shareholders.

In this context, experienced tax consultants offer valuable support in the tax structuring of planned or completed acquisitions. In this way, both tax and business management issues are considered and optimized from a single source.

THE PROBABILITY OF FAILURES

It is essential for companies to be able to rely on their production machines or fleet vehicles without restrictions. This is because machine and vehicle downtime has unpleasant consequences:

• Non-compliance with production deadlines
• resulting in logistics problems
• dissatisfied customers B2B / B2C
• Unpleasant loss of sales
• an increased need for repair and maintenance
• Sometimes high additional costs

Many companies take these disadvantages as an opportunity to prioritize the purchase of new machines – on the assumption that machine downtime will occur less frequently with new purchases. But this is not necessarily the case.

Of course, the advantage of buying new is that the manufacturer’s warranty applies in the event of problems. However, there is often no reason why a used machine should necessarily break down, except due to natural wear and tear. This is especially true for machines that have proven themselves in continuous use.

In this context, it is advisable to ask the original owner about the reason for the sale. If the reason is, for example, an expansion or downsizing of the business, machines or vehicles that are no longer needed are often a good quality and fairly fail-safe bargain.

THE STATE OF THE ART

Innovative developments from manufacturers are certainly an important reason to buy a new product. The innovations have several possible advantages:

• better performance
• Higher precision
• more environmentally friendly technologies
• Machine Learning / Artificial Intelligence
• Optimized efficiency

Sometimes new machine purchases are also necessary to obtain certain certifications and/or to attract or retain customers.

These are all reasons that make the purchase of new machines and vehicles particularly attractive. When making a purchase decision, particular attention should be paid to which of these criteria will benefit the company in question in the long term.

 

 

THE LONGEVITY

Every investment in fixed assets is linked to a certain useful life. If this is the be-all and end-all for an entrepreneur, he is likely to make the purchase decision in favor of new goods. This is particularly true if machines have to be installed at great expense due to their size, weight or technology and replacing them would be complicated.

However, the longevity of used machines can be optimized – for example, by consistently adhering to maintenance intervals or replacing wearing parts in good time. A general overhaul can also make sense under certain circumstances.

When making technical investments, it is advisable to check whether certain software is mandatory for the proper operation of machines. This is because there are older programs for which support is discontinued by the developer.

 

THE INTENSITY OF MAINTENANCE

It doesn’t matter whether you decide to buy new or used machinery or vehicles: The regular maintenance by a specialist is a decisive factor in determining the durability of the purchased goods.

Nevertheless, there are some differences. For example, the maintenance of financed vehicles may only be carried out in certain authorized workshops . In addition, no maintenance appointment may be missed. The costs of checks for new investments are therefore sometimes considerably higher. On the other hand, it may also be the case that older used machines are checked more frequently so that wearing parts are replaced in good time and any need for repairs is detected at an early stage.

 

THE RESALE VALUE

There are two basic options for the purchase of production inventory and vehicle fleets: either to use the respective purchase until it is worn out or only for a certain period of time.

In the second alternative, entrepreneurs should also consider the resale value of their investment. Various tools and experts offer valuable support in calculating this precisely:

• Depreciation tables
• Online calculation tool
• Estimates by experts
• Insurance tables

Relevant sales advertisements and their prices can of course also be helpful in setting an ideal sales price later on.

The be-all and end-all for subsequent planned sales is, of course, to use machines and vehicles exclusively as intended, to have all maintenance carried out and to be able to prove this by means of records as documentation. The better this is implemented, the more advantageous the value will be when the goods are sold or traded in.

THE INSURANCE

Insurance premiums and special requirements from insurers should also be taken into account. This is because insurance premiums are based on various criteria: Depending on the investment, it may well be that a new model generates different premiums than a used one. Acquisition costs also influence the insurance.

In the case of new vehicles, you also need to take into account changes to the KW figures, different bodies and any other criteria in which the new car differs from used cars – even if they are models of the same brand. This is because insurance is a long-term item. This also applies to third-party liability products, which are also based on value.

 

TAKE INTO ACCOUNT THE SPECIFIC FEATURES OF THE BUSINESS

These criteria – and of course there are a few more – are a valuable aid in deciding whether a new purchase or a used investment is the better choice. It is essential to consider these criteria in conjunction with the specifics of the farm in question and its individual needs.

Start-ups are a typical example of this. As a rule, they require a complete range of business equipment with as little strain on the budget as possible. Start-ups must take a particularly close look at the cost-benefit ratio. Many of them will opt for the option that offers either the lowest purchase price or the most favorable financing – regardless of whether a vehicle or machine is new or used.

Of course, there is also the strategy of reducing profits and thus the company’s tax burden by making new investments as operating expenses. Or to make a purchase at a time when you can receive attractive subsidies from the federal or state governments. Possible discounts through established B2B relationships are also relevant.

In addition, the spatial and personnel conditions of companies play an important role. For example, a new machine may have to be installed in a specific hall or existing equipment installation or be operated by a specialized professional. If such an investment can only be realized as a new or used purchase, other criteria are of course subordinate.

CONCLUSION: PLANNING INVESTMENTS AS INDIVIDUAL DECISIONS

The overview on the subject of purchasing new or used machinery shows one thing very clearly: there is no one-size-fits-all strategy that is ideal for every company.

Such investments should always be planned by companies as individual decisions. Ideally, these are developed by an operational competence team in a joint review.

Such a team can include, for example, the owner, purchaser, production or logistics manager and an expert from the areas of cost accounting and tax. In this way, the investment is placed on a sound footing and the company benefits comprehensively from the purchase – whether new or used.

 

Image sources:

Image 1: stock.adobe.com © Stefan_Weis

Image 2: stock.adobe.com © veenmol