Before You Make a Major Equipment Purchase

October 23, 2021

If you don’t have work for the machine immediately, and you plan on selling the business in the next 1-2 years, you may want to defer the purchase.  If the machine is replacing a worn-out machine, you’ll need to replace it (or buyers will reduce your purchase price in order to replace worn out equipment), but if you don’t have an urgent need for the machine, and you plan on selling your company in the near term, you need to make the economic decision as to whether that equipment is a good investment.  If you believe the machine will generate enough profit such that your expected transaction multiple (pick 5 just for illustration) times that profit is greater than the price of the machine, it’s probably a good buy.  If, however, the machine won’t have much use for some period of time after acquisition, all you’ve done is buy a new piece of equipment for which you won’t be repaid in a sale.