Hiring guide
Repair or replace equipment: a cash decision model for your CFO
By CFO Index · Published
A repair quote and the price of a new machine are not a complete comparison. Ask your fractional CFO to show the future cash costs of keeping the current equipment working alongside a realistic replacement plan. Operations must confirm whether either option can actually deliver the required output.
Agree the operating requirement first
Write down the output, quality, availability and delivery dates the equipment must support. Have a competent technical owner assess condition, safety and feasible remaining service life. Remove unsafe or unsuitable options before comparing costs. Include repair, replacement and temporary rental or outsourcing only where operations considers them workable. Finance can test the cash consequences; it cannot certify that a repaired machine is safe or that a supplier's advertised capacity will be achieved.
Compare future costs over the same period
Choose a decision horizon long enough to expose important differences. Include repair or purchase payments, installation, training, maintenance, energy, temporary cover and disposal receipts. The original purchase payment is already spent; do not add it again as a future cash cost. Record the equipment's accounting carrying value separately for the accountant to assess any reporting consequences. If one option will still have useful life at the horizon, show its supported remaining value separately rather than quietly treating it as worthless.
Make every important assumption traceable
Use this proposed comparison sheet for each feasible option. Mark estimates that still need a quote or technical check. A manufacturer's specification describes a stated operating condition, not necessarily your site's actual performance.
| Input | Evidence to obtain | Owner |
|---|---|---|
| Upfront cash and dates | Itemised quote, deposit, installation and balance payments | Purchasing |
| Operating costs | Service history, energy use and maintenance assumptions | Operations |
| Interruption | Repair duration or delivery and commissioning schedule; temporary cover | Operations |
| End-of-period position | Remaining service life, disposal costs and supported resale estimate | Technical owner and finance |
| Cash capacity | Dated payments alongside existing business commitments | Finance |
An illustrative first-year comparison
Hypothetical example: repair costs €8,000 now, followed by €5,000 maintenance and €12,000 energy during the next twelve months: €25,000 total cash outflow. Replacement costs €30,000 including installation, requires €2,000 maintenance and €8,000 energy, and produces €3,000 from selling the old machine: €37,000 net outflow. Assume the same output, no downtime difference and no other costs for this simplified screen. Replacement uses €12,000 more cash in year one. The figures exclude taxes, financing and end-of-year asset values; they do not establish which option is better over its life.
Identify the assumption that could change the decision
In that example, an additional €12,000 repair-side cash cost would bring first-year outflows level. That is a sensitivity threshold, not a prediction of failure. Ask operations what evidence supports another breakdown and whether temporary production can cover it. If using lost contribution to assess downtime, keep that economic impact distinct from cash payments and do not also subtract the same lost sales a second time. For a longer investment appraisal, ask the CFO to explain the horizon, residual values, discount assumptions and uncertainty.
Check affordability separately from the total
A replacement's deposit may be due before the old asset is sold. Put both dates into the cash forecast rather than netting them on the purchase day. The SBA's equipment guidance distinguishes buying from leasing and advises checking the specific lease terms. Use that as a prompt to examine real quotes, maintenance obligations and exit conditions, not as a recommendation to finance the purchase. Local accounting and tax treatment require the relevant adviser; this guide does not prescribe them.
Ask for a decision note, not just a spreadsheet
Request the feasible options, dated cash schedules, technical confirmations and the two or three assumptions that most affect the comparison. Record who approves the decision and when quotes expire. If evidence is missing, state what must be obtained before approval. A useful CFO deliverable lets management explain why it chose an option and what would make it reconsider, without presenting a precise-looking forecast as a guarantee.