Companies that rely on heavy equipment for their work have to do a delicate balancing act when it comes to selling or storing their equipment. You don’t want to wait too long and lose out on cashing in the value of your heavy equipment. On the other hand, if you sell too early, you lose out on getting the most from your equipment investment.
There can be a number of reasons why a company is considering replacing some of its equipment, such as:
- It has become more costly to repair than finance a new piece of equipment.
- When a piece of construction equipment has more downtime than the company can afford.
- The company no longer needs that particular piece of equipment.
- A newer model with more features and specs is available.
A lot goes into considering when to repair and when to replace your equipment. A replacement implies more investment or money from your pocket, but the possible return on that investment can make it a good move. In the same way, repairing your equipment keeps it running longer and can retain the value for when you decide to sell.
Here are some things you should consider when deciding whether to repair or replace your construction equipment.
1. Is the equipment still under warranty?
If repairs are still covered or even partially covered, it will likely cost less to fix it instead of repacing your construction equipment. Most warranties cover the machinery for up to a year. Failing to take advantage of the warranty is essentially tossing some of your equipment’s value out the window. It’s not something you want to take for granted.
Keep it in mind when you buy a new piece of equipment, and be sure to get as much protection in a warranty as possible. You may need to shop around and find a supplier who offers you a solid warranty on your equipment.
If the equipment is no longer covered by warranty, it does not mean you should immediately sell it and replace it. Instead, use the 50/50 rule. With the 50/50 rule, you should continue to fix the equipment until the cost of repairs is half the cost of replacing it. The idea driving this calculation is that the repair costs will increase as the machine wears out. Once it starts wearing down and needing repair more often, the equipment becomes a liability. It loses its value, and you should replace it as soon as possible.
2. Consider your company’s priorities
Some organizations have policies around equipment repair and replacement that you can use to guide your decision. However, if your company does not have such guidelines, it’s probably best to decide what saves the most money right now without putting safety or security at risk.
When it comes to large construction equipment, it’s often more economical to repair it than it is to sell and replace it. These pieces of equipment can cost a lot, and your company will want to get the most out of its investment.
3. Calculate the financials
Another factor in the decision to repair or replace your construction equipment is the financials or the full cost of repair or replacement. Work out how much the machine is depreciating and what taxes or other financial implications there are to keeping it. Remember that older machines depreciate slower than new ones. Here are some questions to ask as you look at the cost of repair and replacement:
- Are you still paying for the equipment or has it been paid off?
- How much tax will you pay on a new unit?
- What are the estimated maintenance and service costs of a replacement?
- Could you do more work and earn more revenue with a new piece of equipment?
- Will there be disposal fees for the old machine?
- If you opt to repair, will that restore the machine to its full working capacity?
Most organizations prefer to repair construction equipment until these costs exceed the price you’d pay for a new piece of machinery.
4. Life cycle cost analysis
A life cycle cost analysis is usually done on each piece of construction equipment an organization owns. This report is very detailed and offers a comprehensive view of each specific piece of equipment. It is used to forecast and analyze the best course of action, whether to repair or replace. It can be a time-consuming process, but when complete, you can be confident you are making the right decision for your organization.
While there are different methods to approach the life cycle cost analysis, the process will examine expenses involved with ownership of the equipment and with the operation of the equipment. The outcome may look at different scenarios so you can compare the cost of each.
Ultimately, when deciding whether to repair or replace your construction equipment, you’ll need to consider the pros and cons of each situation. There is no one-size-fits-all answer to whether you should repair or replace your equipment. It will need to be decided on a case-by-case basis.
Gathering as much information as you can about the equipment and how much it costs your business, and comparing it with how much revenue it is bringing in for your company is the most fundamental way to determine when it’s the right time to repair or replace.
If you’re ready to sell your construction equipment, contact Michaels Global Trading. Our team has experience working with other construction companies to liquidate their equipment. With our services, you’ll be able to focus on what is most important and leave the selling or downsizing to us.
For more information about our liquidation services, or to sell your equipment at our liquidation warehouse in Toronto, call Michaels Global Trading at 1-888-902-7531 or contact us here.