Preventing cash flow problems when investing in equipment

Salon owners can run into cash flow problems when purchasing expensive equipment.

But good planning, along with market and client analysis, can help sidestep this issue.

This was the general consensus among our thought leaders at the fifth Professional Beauty Industry Roundtable, which focused on the key considerations toward introducing technology and equipment into a salon, clinic or spa.

In attendance was Mandy Gray from True Solutions, Karen Austin from Skin & Laser, Farshad Kazazi (Kaz) from Eden Laser Clinics, Daniel Clifford from ClinicalPRO, Bruce Byers from Cynosure, Metro-Dora Clifford from Beauty Thru Nature Skin & Laser Clinic, Mathew Green from Syneron Candela and Meredith Langley from The Beauty Room Cosmetic Clinic, sharing their thoughts and advice over lunch at The Light Brigade in Sydney’s Paddington.

Daniel said you had to have a bit more of a calculated understanding, while Ben said his advice was to shop around.

Bruce said explore the options to go to besides banks, that specialise in capital equipment leasing, while Metro encouraged holding VIP nights to introduce new equipment and treatments.

Mandy said consider affordability, while Kaz said to take advantage of low interest rates.

Mathew said he makes sure a business doesn’t over commit themselves so equipment doesn’t end up on eBay, while Meredith said it was important to really know your business and your clients.

Daniel:
“There’s many different financing partners that will help with meeting those different growth ideas. But let’s say someone has finished their general therapist studies and they wanting to get into doing some high quality treatments. They have to make sure that what they’re expecting return wise is going to cover their capital. The fixed costings, plus living costs. But you have to have a bit more of a calculated understanding. Not necessarily, ‘Everyone else is doing this, I must do it as well’. From a finance position, your best option is not using your own saved earnings, and then working off a much more budgeted figure, for example, ‘Okay, yes I can cover $1000 a month, that’s five treatments, or 10 treatments’. How many does that come down to per week? If you’re advertising, how many enquries are you expecting and how many can you convert? Meeting with your financial planners definitely helps getting that right advice, not only on just a start-up, but the ongoing growth of the business as well.”

Ben:
“My advice is to shop around. You really should talk to technology providers because they will be able to help you finance. There’s some great deals out there. Don’t always necessarily rely on the banks, because they don’t always look after you. But the technology providers will be able to help you with the finance that will suit your business, your budget, what you’re budgeting for with the piece of equipment. The other piece of advice I always come back to is a marketing plan. Execute it so you’re getting your return on investment for that piece of equipment.”

Bruce:
“It’s nice that salons can calculate what they think their daily amount of treatments are going to do, and use that as a basis to see how much they need to borrow. And we as the manufacturers try to work hand in hand with these financial institutions so that the buyer, when they want to purchase our equipment, have options to go to a lending institution to help them with that purchase. It’s great that there’s so much diversity now in the market. You have several options to go to besides banks, that specialise in capital equipment leasing. That’s made a world of difference in how clinics can get up and going, and to downsize the risk they have in getting their business up and growing.”

Metro:
“The way we have tried to do it was to have an open mind. Invite VIPs to the night. It’s a good way to introduce a new treatment, new equipment. I would say always to let your clients be your investors. Don’t use your cash. Keep it for a rainy day. People think cash is king, so why use it on something when you have a wider option? If you have five clients that can invest $5000, that’s your $25,000. Many times that’s either one third or half of the investment. You have a limitation, you have a cut-off point, and it’s that night only. People sign up. I’ve done that myself, every time we have a new piece of equipment, and we’ve never had too much to borrow. We’ve always had part of our investment already made on that first night.”

Mandy:
“A lot of people don’t look at the revenue. And your supplier should be able to give you a revenue calculator in which you put your details and then you see for yourself, if you can afford it or not. Can I afford to do this an actually make money on it? Because there’s no point in just being able to afford it. You wouldn’t buy your teenage son a great big sports car, right? So for a therapist newly off the block, to buy a $200,000 piece of equipment, what are you thinking? Start small with what you can manage. Master that, and then take the next step. I’m a supplier and a lot of the marketing we do provide, because I realise that my customers don’t have that ability. We partnered with Kerry Anne Kennely to promote Omni Lux. We’ve never paid her, I’ve just given her treatments for 12 years. I now make her do them herself. But in the end that gives an identity that other people can relate to. There’s also the government breaks. If your accountant isn’t pointing them out to you, change accountants.”

Kaz:
“My advice would be to definitely try for finance, put an application in, interest rates have never been this low. Especially in Australia. You’ll be surprised at how low these equipment can be financed for. Whether it’s $20,000 or $200,000, the rate would be sub five percent. It makes it even easier to put about 20 percent deposit. Finance the rest.”

Matt:
“We were concerned about a lot of businesses over-committing themselves. So what we recently did is brought it partially in house – we work backwards. We refer the business to the finance experts, and they make an assessment on what they could realistically afford per week. Once we know what their budget is, then we have a look at our product portfolio. Whereas traditionally someone would fall in love with a device and then we just went shopping for someone who would lend them the money. Then just hope they don’t go out of business. Now we make sure that it’s responsible lending and that they’re buying a device which is going to work. The last thing you want as an equipment manufacturer is for a customer to go out of business, that’s terrible. And then of course your device is on eBay, which is the last thing any of us want.”

Meredith:
“It’s important to really know your business and know your clients and what they want, and what sort of business you are trying to receive out there. If I was to purchase every piece of equipment that somebody came knocking on my door and wanted me to purchase, I would have been out of business many years ago. Know your clients, know what they want. Feel confident in your purchase. As long as the treatments cover the cost of the equipment and you can make a bit extra doing well. I’ve done VIP nights and I paid for my machine, Omni Lux Light Therapy, within six weeks. I knew my clients would love this treatment. I knew that it gave me the confidence to keep purchasing more equipment. So, don’t just rush out and buy the first piece of equipment because another person has one and you want to compete. It’s not about competition, it’s not about being the same as the person next door to you, it’s about knowing your market.”

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