Financial justification for new equipment

[copperglobe]

Hello. The title says it all- from a financial standpoint how do you justify purchasing new equipment for your in-bay automatics? Cost estimates range from 100-200k. For those of you that have done this (replaced your old equipment with new equipment) what were your thought processes in making that huge decision? My existing equipment works fine but doesn't have all the "candy" that the new automatics provide. Thanks

 

[briteauto]

I might be unconventional and in the minority on how I approach this, but I have always followed a few rules when considering upgrading equipment:

1. Is the existing machinery paid up? I want to feel like I got my money out of the existing equipment - hopefully you are at this point.

2. Is a new purchase going to put me in better standing with regards to my competition and how well I can wash a car and the product I deliver.

3. Am I at the point where I could raise the price - if necessary.

4. Is my current equipment costing me more than I would like to operate - either due to repairs and/or chemical/utility consumption.


It isn't based only on hard numbers, returns or percentages, but also the question of is my equipment preventing me from washing as many cars as well as I can. Unfortunately, nobody I know has a crystal ball, so there is always a risk involved. Probably not a business school answer, but I never went to business school. But, my locations are regularly successful and profitable.


Obviously, a new machine will not guarantee increased volume at your wash, but an increase in the quality of your services puts you in a place to increase your volume.

I had a friend in the business who went on the first point alone - once his initial note was paid up, he upgraded his IBA within the next few months. Kind of treated it like some people do buying a new car - every 3,4 or 5 years - whatever.

I've seen several posts on this forum where operators either make reference to pinching every penny they can, or offering more to the customer. An example would be in the line of ss chemicals. Yes - it is more to provide hot, foamy, scented chemicals, but I know it brings me more customers into my bays. You still have to stay in your budget, but I never believed in trying to cut corners on what I offer to the customers.

Good luck and tell us what you buy!

 

[rph9168]

What types of "candy" are you not able to provide? Would it be possible to upgrade your equipment to provide that "candy"?

I pretty much agree with most of the points Briteauto makes. I think the bottom line is will the new equipment allow you to raise pricing and/or improve volume.

 

[soapy]

If I am planning on new IBA purchase I like to look at the monthly payment of equipment and figure out how many cars per month it takes for that machine to pay for itself. For example say a $2000 per month payment on the IBA, 30 days per month average ticket of $7 would mean about 10 cars per day. I then look at what I am currently averaging with that IBA and evaluate to see if I can get the additional 10 cars per day with the new automatic.
Other things like chemical savings and maintenance also have to be considered. ON a complete new wash I also want to see how many cars per day it takes to break even. I am amazed by all the express washes that get built with owners who have no idea that they have to do 250 to 300 cars per day just to break even. Probably why so many are taken back by the banks.

 

[robert roman]

The first step in fix or replacement is to determine if the old system is functionally obsolete - has the need or the application changed so that the old can’t perform fast enough or economically enough?

If so, replacement is probably necessary.

If not, you would want to subject the old (fixed up) and replacement new to a comparison of all costs of owning and operating both over the expected life span of the equipment.

In this case, cost is defined as economic cost which equals accounting cost plus opportunity cost.

Consider anything new you’d want in a fix-up like reduced cycle times, more marketing capabilities, dryer efficiency, VFD, reclaim, new pumps, tire shine, more bay lighting and signage, paneling, etc. and then determine its cost as well as the cost of replacement new.

Next, determine how the old fixed up and the new would lead to an increase of volume or revenue, an improvement in the image of the business or provide a meaningful cost savings.

Compare benefit and cost for fixing old up and replacement new.

Generally speaking, the alternative with the highest annualized benefit, lowest annualized cost will be the better choice.

 

[Waxman]

What would you buy for $200k?

 

[copperglobe]

What would you buy for $200k?

I have learned that it's quite easy to spend upwards of 200k on upgrading equipment when you include equipment, freight, plumbers, electricians, building mods and such. You can spend less but you can spend a lot more as well. I've had one estimate of almost 500k for my one wash with two automatics.