Most businesses want to use an asset until it stops working, rather than use credit facilities or cash resources to buy a new asset. That is natural, but can be an easy trap and against your better interests.

Example: You have a delivery truck you paid $40,000 for 10 years ago, and owe nothing on it. It has served you well, but in the past year, you have had to make a $3,000 repair and an $800 repair. You’ve just been told the engine needs to be re-built or replaced for either $3,500 or $8,000. The truck has been completely depreciated on your books, so there is no value there. Decision time.

You can make the repairs, and the largest component of the truck will be new; likely to serve you for several more years. However, the rest of the truck is still 10 years old and subject to more breakdowns and repairs. The new or re-built engine will need to be paid for with cash. It’s been 10 years and the new trucks are $50,000.

Decision time.

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