Is It Time to Repair My Business Equipment or Is It Time to Replace?

Every business, regardless of industry, owns some type of equipment. It may be something as basic as an office printer or as complex as industrial machinery. However, no matter the price or function, it’s imperative that you understand when to repair versus when to replace equipment.

Making the wrong choice can set you back thousands of dollars and could ultimately lead to safety and productivity ramifications. In other words, you don’t want to take these decisions lightly.

1. How to calculate repair costs.  When it comes to repair costs, you need to think about all the different factors involved. These include possible expenses like:

Unfortunately, nothing is very straightforward. The estimate a repair company gives you is just the starting point.

2. The ’50 Percent Rule.’  In repair-replacement debates, businesses have long used the “50 Percent Rule” as a guiding factor. The rule simply states that if repairs exceed 50 percent of the total cost of a replacing a piece of equipment, then you should go with replacement. In other words, it doesn’t make sense to pour money into an outdated piece of equipment if it can be cost-effectively upgraded.

While you have to take this rule with a grain of salt, it’s a good starting point. If you’re well above the halfway mark, then you should absolutely go with replacement; if you’re well below the halfway mark, then a repair makes more sense. Difficulty arises when you’re hovering in that 45 to 55 percent range. In these instances, you’ll need more than a rule of thumb to decide.

3. Think about tax credits and rebates. Tax credits and rebates are often available when purchasing certain types of business equipment. When you add in these benefits, they could dramatically reduce the cost of replacing whatever is broken.

For example, if your office’s HVAC system goes out and you have to make the choice between repair and replacement, did you know that there are actually federal tax credits available for purchasing high-efficiency systems? There may be utility rebates available as well. These all could add up to thousands of dollars in savings in the first year alone.

It’s little details like these that you have to consider. You can’t just look at the sticker price on a replacement piece of equipment.

4. The repair new and replace old theory.  Common sense logic says that it’s much better to repair new equipment and replace old equipment. This simply has to do with the fact that older equipment will need to be serviced more often and any issues you experience now will probably occur again in the future.

However, a lot depends on your piece of equipment. In some industries, older equipment is actually made of better quality materials and may last longer than newer pieces of equipment made with cheaper materials.

5. Consider all the benefits of replacing. “Safety becomes a crucial point of consideration when dealing with older equipment,” according to Polaris Engineering. “No matter how many repairs are made to a piece of equipment, it continues to age and wear down. In addition to being more prone to breakdowns, older machinery is more likely to malfunction and cause injury to workers.”

Furthermore, think about efficiency. While an old piece of machinery may perform the same job as a new piece, are they both doing so with the same level of output? More efficient machinery will save you time and money in the long run.

6. Study tax implications of asset disposal.  If you do end up replacing your equipment, then you’ll obviously have to dispose of the existing piece of equipment. Before deciding what to do with it, consider all of the tax implications of asset disposal.

There’s a little section on your tax filing documentation each year that’s entitled “assets” or something similar. “This page is a listing of all depreciable assets that you purchased for your business–which includes everything from computers to leasehold improvements to equipment and furniture,” tax expert Bonnie Lee says. While you may normally skip over this page, it’s the place to show that you no longer have possession of a specific asset.

Speak with a tax professional about the benefits of selling, abandoning, trading, or donating. Each has different implications and can be used to benefit your bottom line.

In the end, there may not be a perfect answer regarding whether to repair or replace a specific piece of business equipment. However, if you’ve done your due diligence and looked at every possible angle, then you can at least make an educated decision and avoid regret in the future.

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