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Why Hefty Upfront Costs can Bring on the Most Sustainable Business Models

  • Financing|
Published: 01/02/2019

Entrepreneurs are often applauded for making the most out of the least. It’s viewed as an admirable feat to provide the highest return from nearly nothing. And yet, taking this approach can sometimes hurt a business more than it helps.

Yes, the cliché is true. Sometimes, you have to “spend money to make money,” but blindly following this philosophy can lead to an untimely demise. How do you determine the correct amount to spend?

One strategy is to offer a product or service unique to the area. Using this strategy can potentially set your business up to be the only business in a local market offering a specific service. Imagine the revenue produced by that one product alone, let alone the other services offered.

Upfront Costs Can Save More in the Long Term

Many businesses ignore new equipment and opt to start their search with used equipment because of the cost difference, but sometimes the benefits of new equipment can exceed the immediate savings. New equipment has a longer life expectancy, better access to maintenance and parts, and devalues less over time. In addition to running better, it can also help make your overall business perform better as well.

Newer technologies allow for your processes to be done quicker and run more efficiently, saving you both time and money. Additionally, by implementing a reliable system of machinery, training becomes much more transparent and fluid, reducing labor costs and interruptions of your production.

If you’re still not sure if new equipment is really worth the upfront costs, there are plenty of other options to consider in terms of value. For example, most manufacturers offer leasing options, and interest rates are at one of their most competitive points for small business.

Bringing on More Equipment Increases Your Offerings

Bringing on more equipment increases the number of packages and services a business can offer. In turn, your versatility and diversity can be the edge needed to beat out your competition. As studies have shown, firms that focus on diversifying offerings have been much more successful in surviving long-term.

For example, let’s look at the model for a screen printing shop. Let’s say that an average town has five screen printers, with all of them having the basic capabilities of producing silk screens. However, three out of the five have direct-to-garment printing, and two out of them offering embroidery as well as graphic design. By being able to package along not only designing the shirts, but printing them as well, they’ve expanded their offerings to fit the needs of their customers beyond their competitors. In many industries, this can make all the difference.

Final Thoughts

While it may seem like a tough decision to make the investment upfront and purchase more equipment, it can be one of the best choices for the success of your business. Not only will your operations and process run more efficiently, but you’ll be able to offer more products and services as well. However, even though it may seem advantageous to invest as much as you can, it comes with some caveats.

Make sure that the investments you’re making balance out with the rest of your budget. Leasing, as well as obtaining a loan, to afford new equipment can help ease the process, but always look at the expected life of the equipment in comparison to the usage. Additionally, having the right skilled labor in place is key

The decision to bring on new equipment may seem like a stressful task. However, if your business is planning on being open for a long time, it’s vital to make long term investments for it.

If you have questions regarding your financing options or are looking to find the best lending option to cover your business’s up front investments, the Currency team is always available to offer guidance. Contact the team here.

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