sunsally

Every once in awhile you'll see a thread saying "whatever you do, don't lease!" or "having payments is what will bury you".

A little background - I am a salon owner for 4+ years, opening my 2nd. Have been a consultant setting up salons for 5+ years as well as selling equipment. And now am VP of sales for Highline Capital - a sponsor here and a "direct" leasing company offering tanning leases (among others - we have been around almost 30 years and done billions in leasing over that time). I've been on these boards for many years, have made many posts, and am known for being pretty straightforward and honest!


SOME leases are BAD ideas and WILL bury you! Others are very fair and may make the difference between your survival or not the first few years!


An example:

I have 150K in the bank. I own my home (well - the mortgage company does!). I want to open a salon. It will be 100K in equipment cost and 50K in buildout by my estimations.

Option #1 -

I spend my $150K to do the buildout and buy the equipment so "I don't have any payments". As I chug along, it costs a bit more than I expected. There are some delays. I have to start paying rent before my buildout gets done. I thought I would open in January - it turns into April and I miss the bulk of the "season" and the good sales I thought I would get!

I open in April and have to "sit" on the salon through the next slow JASON months. We are new so we never got enough customers to "try" us before the height of the season is over. We're not making enough revenue to cover our basic costs - rent, utilities, payroll, software agreement,....

I've got nothing left in the bank to "carry" the salon in terms of working capital. Where do I go for money now??


Option #2

I have good credit so apply for an SBA loan. They say it will take 8 weeks and my home needs to be used as "collateral" against it. I'm nervous about this - if the business DOES fail (not that I'm planning on that of course!!) -- now I can lose my home too?? Hmm - not ruling it out, but what else is there.......


Option #3

I have good credit so am able to get GOOD leasing rates. I do a SMALL home equity loan to pay for the buildout.

Now I am making payments of maybe $3K/month (across my lease and home equity loan combined). I still have my full $150K in the bank -- making interest, but also as a "safety net" in case I need liquid cash for my working capital and cash flow! My house is "safe". And I have the money I need to put toward advertising and everything else to make sure I start strong and get the customers in the door!


MOST SMALL BUSINESS FAILURES ARE IN THE FIRST TWO YEARS.

That is in ANY small business - not just tanning.

If you go into a business "undercapitalized" -- without enough money -- that is the number one cause of business failure!

Don't be confused that if you use your OWN money that there is no "cost" to that. You take your $150K out of the bank on day one - and then have to WAIT several years before it starts "paying you back". You lose the interest you could have made, and the "opportunity" to use it on other things.

When you lease or take a loan, you use SOMEBODY ELSE'S MONEY upfront. You pay them back as you make the money. SURE - you pay a little interest for them having to put the money up. But it gives YOU the "breathing room" to work on building your BUSINESS off of someone else's dime. You get 100K in equipment - for a little more than $2000/month!

PLUS - there are substantial tax advantages - accelerated depreciation, Section 179 write-offs etc. So the "effective" cost to you is even less!


If you have questions - PM me or call me at the number that is at the bottom of all my posts. I'm not "hard sell" and I won't try to twist your arm into something! I'll tell you likely payments before I ever run your credit and you can see if it makes sense - for YOU!

__________________



Ann Wiggins Noe
VP of Leasing

anoe@highlinecapital.com

Direct line - 720-562-0450

caribbean tan man

I Leased 3 of my pieces and would do it again!

Why use your own money when you can use someone elses.

__________________
someone PM me when a good tanning topic is posted. :lol:

engfant

That's different. Depending on who you are dealing with and how legit their sales pitch is. Some people are honest and some like to make it up to make the deal.

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"And shut your mouth pussycat e fammi un macchiato, pronto!"

http://www.youtube.com/watch?v=UhHhXukovMU

sunsally

Agree with both!

I have seen clients come to me telling me they were told they had "good credit" and were quoted an 11% rate.

In one case, I ran the numbers and found they indeed DID have good credit -- and the rate was 44%!!!!!!


Have to compare payments and terms. There is no "interest rate" per se on a lease, but you CAN figure out the rate factor and determine the effective yield.

Same thing I tell my OWN customers -- don't just listen to what I tell you - have your accountant run the numbers too. Make sure you know what you are getting! I get WAY too many calls from salon owners who got "suckered" - and are stuck!

p.s. Note - if you don't have good credit, you won't get good rates. Manage your credit with your life!!

__________________



Ann Wiggins Noe
VP of Leasing

anoe@highlinecapital.com

Direct line - 720-562-0450

irene

It never pays to spend $1 in interest to save $0.33 in tax... But if you will be tapped will not funds available... lease... then it's a tool.