Space Ace was asking a couple of weeks ago about the gear we will have to buy in our start-up. I won’t go in the details just yet since we are currently shopping around and going through sales quotes. A few things I can mention about financing and buying equipment:
Everything has to be in the business plan. Your business plan will go through the hands of bankers, investors and partners. They WILL check up on you. So if you forgot to put in those high-end ergonomic chairs, you’ll have to explain why you need to modify your initial budget for twenty 800$ chairs. Be realistic, right from the start. You’re better off with a high start-up cost than looking like someone that did not plan your business start-up properly.
Make sure you’re reasonable about the time you need to pay off your hardware. Accountants will try to write off your hardware in about five years. In this biz we all know our computers are obsolete after a year or two. You can stretch your early loans in five years, but think about the hardware you’ll have to upgrade or replace after two years.
You will not be able to rent hardware until you have good credit. Your corporation is a week old and you want to lease 20 high-end workstations? Good luck.
… but the good news is: Material goods are the easiest costs to finance. Since they are sizable assets, your creditors can take it back if you tank. (But you won’t!) Your interest rate will be lower because the risk is low.
Show you are flexible and your creditors will be happy. I’m not saying you should overshoot just to lower your costs, but if you have a backup plan or a step-by-step scheme for buying equipment, you’ll have a better chance at financing. Creditors like milestones and would rather give money in several amounts over a period of time.