How to manage one of the biggest hidden costs of buying equipment

So you’ve won the new bid or have the new production contract in place. Or maybe you made the decision to upgrade your IT infrastructure to create new efficiencies. Either way, equipment purchases that require a healthy chunk of capital are a central component of those strategies. And while you may have planned for the cost of the equipment, often businesses forget to plan for a significant portion of the total equipment expense. We call them “Soft Costs”.

Soft Costs are everything from installation, warranties, delivery, or even assembly in some cases. As equipment becomes more easily customized to meet your company’s unique requirements, more Soft Costs are often required to get the equipment up and running. And don’t sleep on the financial impact. It can cost up to $10,000 just to get an articulated dump truck delivered. IT services, installation, and engineering adds an average of 40% to every IT purchase over $25,000 on average. Some manufacturing equipment can take more than a year to be assembled and installed.

These issues can create serious financial issues. Soft Costs—most of the time–have no real “value” and add no value to the equipment long term. They are necessary one-time expenditures to get the equipment running that cannot be transferred upon resale. And that makes most bankers run for the hills. You may enjoy your very low rate financing for the equipment, but when you evaluate the project in total—including Soft Costs—you could find yourself investing some pretty big money out of pocket to pay for everything, defeating the purpose of preserving capital through financing. So, all in, the cost of the financing is actually quite a bit higher when you consider the required cash investment for Soft Costs.

The other financial issue is that Soft Costs typically happen up front—before the revenues start rolling in from your equipment investment. This cash outlay can create severe cash flow burdens when you need cash the most. Ramping up for new business or creating new efficiencies can require more capital on hand to create inventories, hire staff, and invest in marketing. Tying up cash during this time for things like installation and delivery can create real challenges to execute your strategic plans.

There is the possibility of a better approach. While some lenders may run from soft costs, others can bring them into the financing arrangement. These lenders have strong specialty in financing equipment and understand more than just the invoice amount. They understand the impact equipment like this can have on your business. And as long as Soft Costs stay within certain parameters of the total investment, you can fold them into your affordable monthly equipment payment, preserving your cash for more important needs.

At SLS, we can help businesses like yours tackle the Soft Cost issue. We work to help you keep your cash and acquire equipment more affordably. From IT and Healthcare to Construction and Manufacturing, we work vendors every day to ensure your monthly payment positions your company for success, keeping things downright uncomplicated. As you look to your growth plans, let’s talk.