How to valued used coffee equipment
We continue to receive requests to value used coffee equipment, especially espresso machines.
Our position has been — and is still is — not to provide specific valuations*; however, we’re increasingly aware that some guidance would be useful for the coffee community. So, here are some principles to help you set the selling pricing of your used coffee equipment.
How to value an your equipment
When pricing equipment there are two values you need to identify:
This is the value that the item is worth in your company’s accounts. Many coffee businesses will depreciate their equipment over five years using straight line depreciation. Under this method, the item looses one-fifth of its purchase price each year. For example, a machine purchased for £5,000 looses £1,000 of value each year and will be valued at £2,000 after three years and have no book value after five years.**
This is the amount that another party will actually pay for the item. The market value is subject to market forces such as supply and demand and susceptible to other factors such as advertising, trends and the seller’s reputation. To estimate the market price of your equipment, start by looking at the listing price of similar items on United Baristas.
(It is important to note that items available in the marketplace are not sold. Therefore they have either been listed too recently or are too expensive to have sold.)
Putting it all together
- It is unrealistic to price used (even near new) espresso machines at close to their list price. Let’s guess that the market dictates machines are worth 25–35% less as soon as they are installed (for comparison, the AA estimates new cars depreciate up to 40% once driven off the lot)
- A good condition, quality three-year old espresso machine is likely to have a market value of greater than 40% of its purchase price, a four-year espresso machine even more likely to have a market value of greater than 20% of its purchase price, and so on…
Representing these ideas in a graph clearly shows how sometimes book value is higher than market value — and visa versa.
Sometimes other factors might be more important, including situations such as:
- Upgrading because of technological or operational advantages
- A need to convert assets to cash
- The ceasing of trade of the business or a business unit
What does this mean for my business?
- For most businesses who buy new espresso machines and wish to sell their used espresso machines, it probably makes financial sense to ‘upgrade’ machines on two – four year cycles
- Maintenance costs usually increase with the item’s age and should be factored in to financial calculations when buying and selling used equipment
If you’re going to sell, then price to sell
To take the example of our £5,000 espresso machine, if it was depreciated over five years using straight-line depreciation, the cost is:
- 5 years, of 365 days, plus a leap day = 1,826 days
- £5,000 / 1,826 days = £2.74 per day
That’s actually a very low cost in comparison to all the daily costs of running a coffee business. However, if that machine was to sit around unused for five months before being sold, it’d have cost circa £415 of depreciation over that time.*** Most business owners would rather have had that money in the bank — and that’s also ignoring the cost of capital.
Moving to market pricing
We are building up a picture of pricing on United Baristas Marketplace and will continue to share insights and trends to facilitate market pricing. Our observation is at present there is a mis-match between sellers and buyers expectations, so we’re working to close this gap through explaining these market principles.
If you have any questions or feedback, please let us know.
- * If we start providing valuations, sellers and buyers will blame us for any perceived lack of value, instead of each other
- ** Other methods of depreciation may either be in use, or be more beneficial, for your business. Direct questions to the business owner or the company’s accountant
- ***Depreciation is usually calculated annually, not daily, so this calculation is to demonstrate the point that there is a financial and opportunity cost to holding onto items rather than pricing them to sell
- For the sake of simplicity, these calculations exclude VAT. Read our post on accurately communicating prices.