There are important questions to answer before deciding which way to go on that next big equipment purchase.
In two previous columns, we’ve looked at how you might finance an expensive new piece of equipment as well as what impact a major purchase could have when the time comes to sell your business.
This time we’ll address one other issue: Is it better to buy new or used?
That decision has implications both for financing and for the future sale of your company. But it also demands consideration simply on its own terms. In making that decision, you’ll need to ask which will be the better value? And there’s no one-size-fits-all answer.
Sometimes used is good enough. Sometimes it’s even better. And sometimes, it’s exactly the wrong decision.
Little questions inside the big question
Like many questions, the question of “Which is better, new or used?” actually has many other, much more specific questions lurking inside it. So our job today is to unmask those other little questions. Answer them, and you’ll answer the big one.
Does the product change a lot? How soon does any particular model become obsolete?
If the answer to that first question is “Yes,” the second will probably be “pretty darn soon.” In that case, go for the new model: The used one is probably already out of date.
Consider how relatively inexpensive a brand new personal computer is today compared with the cost 10 years ago, and yet how much more powerful it is. Buying used would probably not be worth the money unless your actual computing needs were tiny and you know they would never change.
But lots of things don’t change that fast, and when they do get added bells and whistles, they are far from essential. So if the answer is “No,” then buying used could be a good choice, depending on other factors.
Is it for a core service your business provides? Or is it for something you’re just beginning to expand into?
The closer to your core business the item is, the more you’re probably going to want to buy new. On the other hand, if you’re getting this machine to branch into a new line of service, you might want to look for a cheaper used product, lowering your cost of entry into the new line and also cutting the “sunk cost” you’ve incurred should you decide that the new business isn’t as profitable as you expected it would be.
What is the item’s resale market?
That’s actually a tricky question, and by itself, the answer won’t actually tell you a whole lot. Here’s why: If the resale market is good, you can read that as an argument for buying either new – you’ll be able to sell it yourself without much difficulty if you need to for any reason – or used – you’ll have an easier time of finding a used item than if the resale market isn’t so great. But it’s still worth knowing by itself, because taken with all of these other questions, it can help you make the most informed decision possible.
Are older models actually better?
That happens sometimes. Think houses – what experienced homeowner do you know who doesn’t swear older homes are better built – sturdier, more solid and with better craftsmanship? The key, of course, is that the designs might not fit your needs, or the home lacks newer features like better electrical and plumbing systems or dedicated media rooms or easily finished basements. But if the older models are better and are sufficient to your particular circumstances, that can be a good reason to purchase used.
What’s the product’s maintenance track record and its ongoing maintenance cost?
The better the record and the lower the cost, the safer you are buying used. The worse the record and the higher the continuing cost, the more you may wish to go with new, particularly if that way offers a better warranty. So researching reliability data is critical.
Can you trust the seller if it’s used?
Going through a dealer with an established, positive reputation is likely to be the safer route for buying a used piece of equipment, rather than relying on, say, a stranger on Craigslist. If you do buy directly from an individual, make sure you really know what you’re getting. Pay a mechanic to look it over before you sign the transaction agreement.
Can you inspect the unit in person?
If you can’t, then walk away. You’ll be making a big investment, regardless of whether you’re buying new or used. To do that without being able to quite literally kick the tires – and do a whole lot more – is absurd.
Is the used product stock, or has it been modified?
The more modifications the previous owner has made to the machine before selling it to you, the greater the risk. Even if the seller is someone you consider completely trustworthy, you can’t know what sort of aftermarket or seat-of-the-pants modifications might have rendered the machine less safe to use or more prone to a future breakdown – not to mention, possibly voiding any remaining warranty on the product.
Financing and reselling
Finally, consider what the new or used choice might mean for financing.
Your options are probably fewer for financing used equipment – you’ll probably have to go through a bank, especially if you buy from a private party. And older equipment might require a faster payoff on the loan and larger payments. Equipment you own has one other purpose you might not think of: It’s a way to borrow money in the future if you suddenly face a cash crunch.
Don’t over-leverage yourself now, when you first buy it. And think twice about buying used, if that means your actual equity against which you can borrow will be much less than if you bought new.
These aren’t the easiest questions to answer, and some take a lot of research. But they’re worth the time and energy, so that when you get that next big truck, you’ll know you made the right decision – new or used.