Opening up a new business venture is a costly affair. Entrepreneurs live by the motto, “To make money, you have to spend money.” But too often, many new business owners overspend on certain areas, including equipment. The cost of launching a business from scratch varies greatly.
While many technology startups have the luxury of opening operations virtually with as little as $1,000, brick-and-mortar shops, as well as service-oriented businesses, are still saddled with an array of costs. These might include real estate fees, employee wages, inventory, equipment, and insurance. The best way to launch your business is to lead with a comprehensive business plan. Entering into a new business venture with a “we’ll just wing it” mentality is a surefire way to blow through an entire budget and bow out before you have the chance to really make a mark on the market.
Before applying for any financing or dipping into your bootstrapped budget to make early purchases, it’s best to take a step back and map out all of your spending needs in one sitting. Take stock of typical monthly budgets within your arena and think beyond big-ticket items. For example, it’s not enough to just budget for real estate rental fees; you should also be planning for monthly electrical fees and insurance fees. Taking the time to create an overarching plan and figure out every possible cost will save you a major headache down the road. Here are a few of the questions you should be asking yourself:
How many employees will you need at the time of your launch?
Can you purchase multiple inventory items from one vendor and possibly create a discounted package deal?
Will you need to establish relationships with several vendors?
What about technology? Will everyone on your staff require a personal computer, or will a few comprehensive workstations suffice?
What do you project your sales to be in your first month, three months, and six months?
Will you need to spend money on interior decorations?
Does your business require home delivery? If so, how many vehicles will you need?
Will you outsource cleaning? If not, what types of cleaning equipment are essential to buy?
What kind of insurance will you need to purchase?
Will you need to spend money training employees on equipment usage and safety?
Is location integral to your business’ success? If so, will you need to spend more money to rent real estate in a highly desirable/accessible neighborhood?
Once you’ve mapped out all of your potential expenses, you’ll have to settle on a new business owner’s biggest decision and heaviest financial burden: the location of your business. The general rule of thumb when it comes to deciding between buying and leasing commercial space is that it depends on how long you expect to stay. If your answer is less than 7 years, which is the more common answer, then renting is your best option. However, if you plan to make a new space your business’ long-term home, then paying a mortgage is the smarter choice.
For new business owners, though, this might all be a moot point. When you’re first starting off, you have no idea if your new company will resonate with consumers or not. Because of the uncertainty, it is likely safer to rent a space than to purchase one outright.
Most new business spaces require some renovation, which, of course, tacks on to the already expensive process of launching a new business. However, it is possible to find highly functional spaces that require minimal construction. The restaurant industry is known for its high turnover, which can actually be a good thing for hopeful new owners. Rather than building a brand new kitchen, any restaurant owner will tell you it is far better to update an existing restaurant space.
Once you’ve chosen a space to rent, it’s also in your best interest to negotiate the monthly rent with the landlord. If the space has been vacant for some time, it’s usually a signal that the landlord is desperate to find a lesser and may be willing to come down on the price. Some small businesses have had success in setting up agreements which don’t require them to pay rent until their doors officially open for business.
Next to real estate, equipment is one of the biggest expenses any new business will take on. While most small businesses cannot afford to buy or lease equipment with their own bootstrapped savings, there are a variety of online lenders dedicated to helping new businesses across industries find the right financing to purchase equipment and get their businesses off the ground.
After finding a lender, there are still several ways to save with the money you receive, including opting for pre-owned equipment whenever you can. Buying completely new equipment for business is generally not worth it. Some pieces of equipment have longer lifespans, or don’t experience as many technological updates as others. For example, office equipment is typically relegated to a lifespan of five years. Rather than paying full price on a new suite of office equipment every five years, it may be worth it to purchase previously-owned monitors or printers. As long as your equipment functions and meets typical industry standards, you might end up saving 25%-50%.
Although financial planning for a new business is a daunting task, there are ways to get your business off the ground and save money while doing it. At the early stage of your business’ life, it is not always feasible to spend top dollar on every piece of equipment or business function. Knowing when to spend and when to save is a major component of successful entrepreneurship.
If you’re looking for equipment financing options for a new business, contact the team at Currency today!