Shop Management Purchasing - Buying Used Equipment

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Buying Used Equipment

Purchasing used equipment is a viable option for the smaller or start-up moldmaker who wants to expand his repertoire without a huge capital investment.

By Sherry L. Baranek

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Why You Should Consider
Leasing Equipment for Your Shop
By taking advantage of leasing options, mold-makers can invest in new and upgraded equip-ment now.

How to Lower Leadtimes
Through Spindle Retrofits
By adding a secondary high-speed spindle to their machining centers, moldmakers can gain higher speeds at a lower cost.

The Top Ten Advantages of Leasing
Leasing provides moldmakers the ability to acquire equipment they might otherwise not be able to afford.

Shop & Business Management Zone

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Any mold shop owner knows that purchasing equipment is a huge investment—and not a decision that is made lightly—especially with a smaller or start-up venture where over-head and cash flow can make or break a business. Depending on the size of your shop, purchasing used equipment may be a less expensive alternative than buying brand new.

According to Ben Hanna, senior category manager of eBay Business and Industrial, over the past three years the company has seen a shift in business buying and selling—which is driven a great deal by the business and industrial sector, particularly manufacturing and metalworking.

John Muzyczka, a sales representative with the Injection Molding Division of Stopol, Inc. (Solon, OH)—an equipment dealer and industry consultant that operates an online auction site dedicated to the plastics industry that sells new and used moldmaking equipment—explains that the primary benefits to acquiring pre-owned machinery are a smaller initial capital investment and a substantially shorter leadtime. “Generally speaking, pre-owned equipment is less expensive and can be acquired faster than you can get a new machine from an original equipment manufacturer (OEM),” Muzyczka notes. “If you want a brand new machine, leadtimes can be as much as 12 to 16 weeks. But pre-owned equipment is up and running in a fraction of that time.”

In agreement is Judith Griggs, president of Fort Worth, TX-based Preferred Machine Tools—which sells pre-owned CNC lathes, mills and machining centers—who notes that purchasing a pre-owned machine means saving at least 30 to 50 percent versus buying new. However, Muzyczka cautions that when deciding between new or pre-owned equipment, buyers may want to examine whether or not warranties can be transferred and if service agreements exist. He says that generally OEMs do not transfer warranties.

In addition, the return on investment (ROI) of pre-owned machinery depends on the circumstances surrounding the purchase, Muzyczka explains. “You have to look at why you are obtaining the pre-owned equipment,” he states. “If you are doing it to fill a special order or because you need to keep operations proceeding with minimal interruption, then you need to weigh the price of the pre-owned machinery against the profitability of the job or order.”

What to Consider

There are several things to be wary of when on the lookout for used equipment (See Used Equipment Buying Tips Sidebar). Griggs notes that just because a new machine may look sharp, it doesn’t mean it works better than pre-owned equipment. “If you are going to inspect the machine yourself, using common sense is always a good start,” she advises. “And don’t worry if some paint is missing. Coolant eats the paint; chips fly against the machine interior and remove paint. I would be much more concerned over a painted machine than one that has not been painted. Mechanically, is the spindle quiet; when the slides move are they quiet; is there any scoring on the ways; is the turret (on a lathe) seating properly in every position—forward and reverse; is the tool changer (on a mill) functioning in every pocket; is the turcite (on a mill) okay, etc.”

Used Equipment Buying Tips

1. Know Who You Are Buying From

Is the business you are dealing with well known in the area—and the industry—and do they maintain a good reputation?
What organization(s) does the business belong to?
Is the business a stocking dealer or broker? Or, if they are an online service, are they simply a listing service or do they possess industry knowledge?
Does the business provide references?
Talk to other shops in the business where the business is located.

2. Inspection of Equipment (always inspect machines under power)

Make sure you inspect the equipment before purchasing. If you are out of state or long distance, find a reputable local technician in the area to inspect the machine for you. This can be fairly inexpensive and very beneficial. In most cases, a technician can find things you may miss. Be sure to talk to the technician beforehand and tell him what you are looking for and ask for a detailed report. Pictures are always a good idea.
Contact the OEM for maintenance history.
Obtain maintenance records from the seller/dealer.
If you buy a machine without first inspecting it (which is not recommended): get photos as well as a video of the machine running, get a return privilege, and make absolutely sure you know who you are sending your money to.

3. Trucking and Rigging

Ask the dealer or seller to assist you in getting you a trucking and/or rigging rate. These businesses work with truckers and riggers all of the time and can usually get you the best rate. However, if you feel the rate is high, get a second opinion.
Although you may be paying for these services, ask the dealer to assist in coordinating the trucking and rigging of your machine—it can actually save you a lot of time and headaches.
All equipment should be insured for loss during the transportation/rigging process.

4. Installation of Equipment

Estimate installation charges.
Estimate installation time. At this time, determine whether any ‘special’ changes were made to the press and whether those will affect the performance/reliability of the equipment.

5. Return Privilege

Leasing—if you are buying your machine(s) using a lease purchase, remember pre-owned equipment is paid for prior to shipment and when leasing, once you sign the acceptance you may have a return privilege with the seller, but make sure you are not committed to the lease company if you return the machine.
The standard MDNA (Machinery Dealer National Association—an international, nonprofit trade association dedicated to the promotion of the used machinery industry) return privilege states: Accept within 30 days from shipment any machinery and equipment sold with return privilege, freight prepaid, for refund of the purchase price if proven mechanically unsatisfactory; or repair at dealer's option.—from www.prefferedmachine.com and www.stopol.com.

Stopol’s Muzyczka agrees, adding that the machine should be operable and the prospective buyer should have the opportunity to inspect it themselves. “Prospective buyers should take advantage of the opportunity to inspect the equipment, watch it run and ‘kick the tires’ in person,” he recommends. It also is important to examine a machine’s history—particularly in the areas of maintenance, retrofits, hours run, type of product and materials used on the machine (whether those materials were corrosive to components or not). And, Muzyczka urges prospective buyers to request any manuals and blueprints pertaining to the machine, and explore the availability of replacement parts.

One should also consider what kind of job(s) the machine will be performing. “When you purchase pre-owned equip-ment, a buyer can be somewhat limited in the payment terms offered and the options available—used machinery doesn’t always come with all the bells and whistles that a new machine may have,” Muzyczka states. “However, retrofit options should be researched prior to purchase.”

Where to Buy

Used Machinery Dealers
Purchasing equipment directly from a company that sells preowned equipment is one way to go. Griggs points out that dealers have reputations to maintain, so it is unlikely a dealer would sell anything that isn’t going to stand the test of time. “It’s very important to us that when we sell equipment, it is in good running condition and it is what we represent it to be,” Griggs emphasizes.

Navigating Online Auctions
Purchasing used equipment from an online auction is another option if you are unable to get away from the shop or can’t find used equipment locally. According to Neil Kruschke Jr., CEO and founder of Stopol, Inc. (Solon, OH), the main benefits of using online auctions are flexibility, efficiency, cost savings, cost effectiveness and global reach. “Sometimes it doesn’t pay to send someone to an auction to buy one machine if the location is remote and it will take someone out of the shop for a great deal of time,” he states. “It makes more sense to go online.”

Additionally, Kruschke points out that an online auction’s search capability can quickly lead buyers to the equipment they are looking for. “When you take into account the time, effort and resources used by companies in trying to find a singular piece of machinery, the ability to find exactly what you are looking for in a matter of minutes—free of cost—is invaluable,” he emphasizes. He adds that similar to using a dealer to purchase used equipment—online auctions allow buyers to get the machinery they need into their shops in much shorter timeframes. A moldmaker also can find and acquire equipment that is more technologically advanced at more affordable prices.

Hanna of eBay adds that online auctions also afford more options to used equipment sellers. “You can reach millions of users in a number of international markets,” he emphasizes. “It’s a great way to reach out to the world and bring a lot more potential interested people to your items. Online auctions provide a forum for small businesses to reach beyond their local marketplace to sell items far beyond their local market or to source items inexpensively.”

Making A Choice

No matter what avenue you choose to explore when adding preowned equipment to your shop floor, the benefits remain the same: the machine you want is ready for shipment, the delivery time is short, the equipment is reliable, and the cost is significantly less than the price of brand new equipment. Taking the time to investigate which option is right for you before you make a purchase will go a long way in ensuring your purchase stands the test of time in your shop.

Tax Issues

According to John Muzyczka of Stopol, Inc., transactions involving pre-owned equipment provide tax benefits to both buyers and sellers through the “Like-Kind Exchange” provision of the tax code. “Rather than recognize a large taxable gain, IRS Code 1031 allows you defer the tax if you structure the deal as a like-kind exchange rather than as a sale,” Muzyczka states. “This enables you to apply all of the appreciation in your property, undiminished by the tax that would otherwise be payable, toward acquiring replacement property. Essentially, IRS Code 1031 allows the seller to reinvest total sale proceeds. The amount not paid in capital gains tax to federal and state governments allows the investor to build equity. Tax deferment therefore increases the availability of funds that can be invested and enhances value that is compounded with continuous re-investments.”

He adds that buyers also can take advantage of the Expense Election under Section 179, which effectively increases the amount a business may deduct for depreciation on capital equipment purchases. “Also known as Deduction Depreciation, Section 179 is in effect through 2007 and allows you to deduct $100,000 on purchases of new and used equipment and accessories totaling $420,000 or less. Plus, you can still take advantage of standard depreciation rules, further reducing your tax liability,” Muzyczka says.

Sellers’ Benefits via Online Auctions

When it comes to selling moldmaking equipment, there are a myriad of benefits realized by using online auctions, notes Stopol, Inc.’s John Muzyczka.

Maximize the value of your company by divesting surplus assets: Online auctions offer you the ability to streamline operations by selling equipment and assets that you aren’t even using. In addition, the competitive nature of auctions increases the odds that your machine will fetch an even higher price.

Sell to a global community: You can market your surplus assets to a global audience. Sellers reap the benefits of increased exposure and visibility and a large contingent of qualified buyers the site brings.

Accelerate the sales process: Sellers are able to divest equipment in a much shorter timeframe.

Exchange old equipment for new: Rather than continually trying to update and upgrade your older machinery, online auctions allow you to sell your existing equipment and use the proceeds to acquire more technologically advanced machinery.

Sell rare and specialized equipment easily: By marketing your specialized equipment to a larger, global audience, you increase the likelihood of finding interested buyers.

Inventory reduction: You can purge books of surplus equipment to generate additional revenues for your company without incurring additional marketing or sales support costs.