Your Company's Equipment: Better to Maintain or Buy New?

Rianne Hunter

May 14, 2014

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Modern equipment for a business can have a fickle lifespan. No matter how important the piece of equipment is, a manager has to carefully consider two potential investment paths: repairing the equipment or buy a new product to replace it. These considerations cost money no matter what, but many managers may have a hard time considering which is a better route for their business to take. Here are come considerations on whether it is better to maintain or buy new.

Repairs Could Add Up

Its hard for a manager to know if the repair being done to the equipment is a one-time occasion. Sometimes a repair may be needed and the piece of equipment is fine for years, making the repair pay for itself. However, when the frequency of repairs exist within a short period of time, then the piece of equipment is too much of a waste to be maintained. This frequency is hard to consider, however, since repairs tend to be episodic. A construction company manager may decide just to purchase new access platforms for sale when the old machines break down rather than continue to make repairs to the old platforms. It's a careful budgeting game management should play to determine whether new purchases and fewer repairs or continuing repairs are more worth the expenses.

New Purchases Can Be Tax Deductions

Depending on the tax year, some new equipment purchases can easily be written off as a tax deduction for the business. This can influence the decision-making process for that new piece of equipment; if there is a broken piece of equipment and its beneficial on a tax-level to purchase something new, the manager may decide to purchase new equipment. However, it must be noted that each tax year is different. Some tax years can have larger deduction amounts than others. Also, repair costs can also be written off.

Have a Maintenance Team

Repairs can be seen as episodic, meaning when they happen, they happen that time and management takes care of the situation. But, repair costs may become negligible over-time if its maintained over-time. Having a team of workers performing maintenance duties regularly may seem like a human resources cost, but if a very important piece of equipment is needed at all times, then the cost of hiring a team to maintain the equipment is worth it. If preventative maintenance to this equipment is an important value for the manager, then there is no need to hire anyone for episodic repairs. Also, if the team is able to maintain the equipment, the lifespan of the equipment may last well beyond the typical 5 years managers expect equipment to last. The yearly cost of maintenance workers will be more cost-effective than buying new equipment in many scenarios.

Consider Efficiency

New technology can increase revenues and reduce costs if a new line of a product is radically more efficient than previous generations of machines. For many businesses facing a broken piece of equipment, the calculations of which investment is cheaper may become more complicated if a new purchased piece of equipment is more efficient that previous models. This would allow for more savings over the long-term from fronting a large investment of a new product.

Price Rule

Some consumer advocates make the argument that there is a natural price-setting formula that any manager or consumer can make concerning the repair or purchasing of a new product. This rule is sometimes called the 50 Percent Rule. This rule basically means that if the repair of the original product costs 50 percent more than purchasing a new product. This rule is often used for consumer products, but many managers may need to consider this rule carefully. Capital expenses for equipment typically used in a company could more expensive due to technical innovations with these machines. Repairing a 10 year printer in the office may be radically less expensive than buying the newest office printers, for example.

Managers Need To Consider All Variables

A good manager will see costs in every decision and non-decision made. It may be more cost-effective to always maintain equipment with now-and-again repairs or to buy a completely new piece of equipment. Considering these costs, especially over the long-term, can help the manager better understand which choice may be best for their company.