Is Used Packaging Equipment Right for Your Business?
Who should buy used packaging equipment?
You are a good candidate for used machinery if your product and packaging needs are pretty standard, or generic; buying a machine that was previously used for producing an identical or very similar product might work out for you. However, if your product does not fit this bill, it is highly recommended that you do not purchase a used piece of equipment, as you need to utilize a packaging machine that precisely fits your product, film, and production speed specifications. Some people are under the assumption that a VFFS is a VFFS, and a bagger is a bagger, but for non-generic products, no two machines are exactly the same.
What should I keep in mind regarding used packaging equipment?
Most used packaging equipment for sale in the market is nonfunctional, because if it was working, there would be no need for it to be taken out of production, unless it was obsolete and its owner was upgrading. New machines typically come with a one-year warranty. In contrast, the probabilities that a used machine’s parts will be under warranty, that service will be provided by the machine’s manufacturer, and that the machine will have a documented history of maintenance are very low. In addition, the machine will most likely need obsolete replacement parts that are virtually impossible to find in the market, because machines change significantly from model year to model year. Not only are the parts extremely hard to find, but the cost of replacing them could end up equating to the cost a new machine. Additionally, even if you were to replace every single part on used packaging equipment, it will never be like new again; it will never be up-to-date on technology, speed, and production, like its contemporary counterparts.
People who buy used packaging equipment typically go that route to save money. However, buying a used machine can end up costing you much more than the purchase price of the machine. To explain further, if you buy a used machine for $5,000 and it turns out to be completely nonfunctional, you are out $5,000 because it will be virtually impossible for you to resell. Something that you must remember when adopting the use of packaging equipment in general is that you are banking your entire business on the equipment working properly. If you have a small business that produces 1,000 bags per day and your machine is down, you will produce zero bags per day. Imagine if your equipment is down for two weeks — that is 14,000 bags that you could not produce! How do you explain that to your customers? This is an example of how buying a used machine that does not function properly can have a devastating impact on your business.
What should I do with a packaging machine I no longer need?
Like a car driven off the lot, packaging machines become “used” the moment you start producing with them. Additionally, machines are tax deductible, and their value is dependent on their use; you must anticipate the depreciation expenses, year after year, accounting for the asset in your books. Machines depreciate in value each year the machine is used; they do not have much resale value. In regards to trade-ins, some manufacturers accept equipment trade-ins. However, most do not for this specific reason. If you have used packaging equipment to sell that you purchased used, you will probably lose even more money in this scenario because other buyers will wonder why you bought it used in the first place. You should expect to take a big loss on a used machine like that. Aside from the negative effects on your business’s asset portfolio, getting rid of your machine has other consequences that may be realized down the road. To explain, Rodrigo Sanchez, Vice President at Masipack Group, tells his clients, “Never sell the machine [you buy from me], even to a friend.” This is because, if you have a functional machine and are making money with it in production, then the person to whom you sell the machine will make money by using it next, and you are allowing cheap competition to arise. You reduce the barriers of entry into your industry, effectively inviting competition. You might be of the conviction, “The person to whom I’m selling my machine is small; they are not in the same league as me,” when really, down the road, this person could outcompete you!
When it is time for you to replace and dispose of your old machine in order to upgrade, downsize, expand, or whatever the case may be, the smart move is to completely write it off on your balance sheet and taxes, then actually cut the machine right down the middle because it is now nearly worthless. It is an industry best practice to get the most use you can out of the machine, and then sell it for the scrap value.
To wrap it up, used packaging equipment is only a viable option for those who manufacture a product that is generic and requires standard packaging. Purchasing a used piece of equipment carries many risks that must be considered. When the time comes that you are looking to replace your equipment, it is advised that you sell it for scrap value, as opposed to selling to someone who could outcompete you one day.
Mr. Sanchez is Vice President at Masipack Group, and has more than 30 years of experience in the packaging industry.