Should We Buy That New Machine?

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As a manufacturer, you are keenly aware of the costs of running your business. Everything — labor, machinery — costs money, but there is also a balance where investments end up paying off. Often, companies struggle to decide whether to invest in new equipment and new machines — after all, they are very expensive. 

And an expensive, new machine can be a very big gamble. If you do not need the extra manufacturing capacity from the machine, it will simply be underutilized, and you will have effectively lost money. So, with all that in mind, should you buy a new machine for your manufacturing business?

There are two main considerations to this question (though they are interrelated).

First, do you have the capital for the investment? If you have enough money in the bank, then you can invest it and can only lose as much as you put in. However, if you do not have the money, you would have to raise it somehow — typically by obtaining a loan. This is more dangerous because you could lose more money from interest than if you had just used pre-existing capital.

The second main consideration is whether you need the increased manufacturing capacity. If you know you’re not going to need to produce more, then investing in a machine that can provide more output is a waste of money. Additionally, If you’re taking out a loan to pay for your new machine, you need to consider the cost of that — is your increased productivity (and then, revenue) going to pay back the cost of the loan and interest? How soon will that be?

Investing in a new machine can be a gamble, but if you think through these two considerations, you can feel ready to buy a new machine and put your mind at ease. 

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