Some businesses can get themselves off to a bad start by not leaving themselves enough cash flow to deal with a slow launch. When there is not as much capital available as the managers would like to get the business off its feet or to survive unexpected setbacks at the beginning, renting equipment can be the best option.
Obviously renting is an option when there is not a large working capital or enough cash flow to maneuver should sales not come in according to the forecast. There are also plenty of other reasons, but cash flow is always the first point to consider.
A good example of this is an example provided by Best Sunbeds Ltd rentals team.
In the sunbed business, the reliance is on advertising and local walk-in traffic. In some cases, the weather can play a big part as an external influence to the success of any new tanning salon. If there is a particularly long summer, and the salon decided to open in October, many people will still be reluctant to spend the money to come into the shop to top up their tan.
In this case the business losses one month of business. This results in the cash flow forecast already being behind its projected income. Even with decent advertising and marketing to create awareness in the local area, sunny weather is going to delay those that are aware of the salon making a visit.
One business that Best Sunbeds dealt with had bought all their sunbeds outright. The problem was that their opening came with bad timing. The company in question, which will remain unnamed, opened mid-August planning for a bad September. It turned out September was a great month for the weather and so was October.
In the end, the company was in trouble after only be open for its first quarter. It was struggling to pay the rent and its staff. The shop had to close earlier than usual because they could not get the staff and the owner had a family to look after, so she could not work there after a certain time.
The biggest problem was that the salon owner decided that rather renting, she would buy the sunbeds to own them. Had she rented the sunbeds, she would have had the spare cash flow available to keep the staff working late at night when people finishing work are likely to visit.
Best Sunbeds got involved when the owner wanted to sell the sunbeds in exchange for a rental agreement. In the end, the company struck a deal with the salon seeing potential because the one advantage this salon had was that the next tanning salon in the area was over 3 miles away.
Another reason she should have rented the sunbeds is that they are not easy to sell. They are big and bulky machines. The ones the salon had purchased were also commercial grade sunbeds and very expensive – too much of an investment for someone to buy as a personal sunbed without some consideration.
In situations where a business uses equipment that may count as an asset but is not easy to sell the equipment is best rented, to begin with. Luckily for the salon in question Best Sunbeds was at hand. The owner clearly could not shift them quickly and would have been left with the possibility of selling them at half their value.
Hopefully, this gives anyone looking to start a business that requires machinery or equipment to service its clientele. Renting is always an option if you have low capital to begin the business. Then, once the business starts to grow, this is a great time to start to think about owning your won equipment and adding them to your balance sheet as an asset.