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Depreciation Dilemma: Managing Idle Equipment

May 1, 2014 - 5 years ago

By Supply Post

By Franklin Langham, Vice President of Sales, Iron- Planet

From the moment heavy equipment leaves a manufacturer’s lot, it begins losing value. Owners can best protect their investment by regularly putting equipment to work and taking good care of items. However, not all owners follow this advice. It’s not uncommon for equipment yards to have an overabundance of underutilized or poorly maintained machines that have been long forgotten. Bottom line: heavy equipment is a depreciating asset that loses value over time. If a piece of equipment is not put to work, it’s not generating revenue and is actually costing the owner money.

As the economy continues to improve, it’s important for fleet managers to think about their equipment inventory and cash flow so that they can better understand how to manage their organization’s assets.

When assessing whether to keep or sell equipment, organizations should take the following into consideration:

1. Current buyer demand
Fleet managers should consult auction companies to assess the current market conditions for their items. This will make it easier to determine if selling the equipment makes sense or if it is wiser to wait for buyer demand to increase. Fortunately, online heavy equipment auctions provide an opportunity to reach buyers outside of an owner’s region. By doing so, owners can reach buyers who may be willing to pay more. Thus, even in the middle of winter in Canada, a seller can connect with a buyer in a warmer climate or a faster growing economy to generate a better price.

While fleet owners often write off equipment that is no longer functioning or is operating at reduced performance levels, it’s important to remember that everything has a value. Not all buyers are interested in machines in perfect condition, as this can drive the purchase price higher. In fact, some purchase equipment just for the parts, attachments or as rebuilds. Today, online auctions provide a variety of equipment in different conditions. This draws in a diverse audience of buyers and allows fleet managers to capitalize on demand for any and all equipment.

2. Upcoming pipeline of projects
If an organization anticipates a steady flow of future business, it makes sense to hold onto equipment. However, if there are few upcoming projects, it is recommended that owners assess which types of equipment are not being used on a regular basis. It may make sense to keep equipment such as excavators, crawler tractors and compactors in the fleet as this common core equipment can be utilized for a variety of work. However, selling specialty items and older underutilized core equipment at auction may be beneficial to the business. The funds can be used by the business to purchase newer, more reliable equipment or specific specialty equipment for the upcoming work.

3. Cash profit
Sometimes, an organization will find itself in need of some quick cash. As banks become increasingly strict about lending, businesses are forced to prove that they are good credit risks. Keeping idle equipment lying around makes a business less liquid. To demonstrate liquidity, companies can sell old equipment to get cash rather than having money tied up in assets. This can greatly improve a company’s balance sheet.

Selling idle equipment also allows organizations to reinvest the profit into equipment that will be more suitable for the season and/or their current list of business projects. In fact, turning inventory over can sometimes give an organization more space to expand the types of projects they take on by purchasing specialty equipment or additional core equipment. The profit made from selling idle equipment can also be used in other areas of the business, such as managing taxes or payroll.

4. Storage requirements
Idle equipment requires appropriate storage in order to protect machines from harsh weather, vandalism and theft. Owners should regularly review current inventory so that they can determine which equipment is taking up the most space or requires the largest storage investment. If large or costly items are not used on a regular basis, it may be beneficial to sell them at auction.

5. Maintenance requirements
When equipment is not regularly maintained, parts or attachments can become worn and seize up. Tires may lose traction and low fluid levels can result in damage. The older equipment gets, the more attention and maintenance it will likely require. Additionally, when colder months arrive, fleet managers may have to move equipment indoors, winterize the systems and periodically run the machines to keep them in satisfactory working order.

Owners have to decide if it makes sense to repair the equipment over time or if it is more cost effective to sell it and replace it with a more reliable machine. Owners should assess the expected maintenance costs of each machine, especially if items aren’t being used for extended periods of time or if they are at the end of their life.

After fleet managers have consulted trusted equipment experts and weighed each of the above points, they may find that selling their used equipment is the best course of action. Partnering with a trusted online marketplace to assist in the disposal of their equipment will ensure a quick and smooth process. Sellers save money because they don’t have to transport equipment to an auction yard. Transportation costs can be considerable, especially if equipment has to travel a great distance to the physical auction site or if it is damaged and requires special transport.

Online auctions also provide faster time to cash when compared to traditional physical auctions, especially when they occur on a weekly basis. Equipment can be listed and sold in a timely and cost effective manner, which can be a huge help to any organization.

Finally, online auctions get sellers in touch with a vast global buyer base. Reaching more buyers will help yield true market prices and give owners the highest net return possible on their equipment assets.

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