Tom's post seems to make the assumption that the term of the lease is long term and that it is possible to lose customers prior to the end of the lease term. There are several problems with these assumptions. First, leases can be structured in many different ways including the length. On a cash basis we generally plan on a CAPEX ROI of 6 months for customers signing 36 month contracts. As a growing company even this kind of ROI would destroy our cash flow. By leasing the equipment on a term shorter than the contract e.g. 18 months we are able to be cash flow positive on the customer immediately even including the debt service on the lease. This leads to the next point, which is that the lease term is less than the customer's contract. This ensures that we won't lose the customer before the lease term ends. The other important thing to consider is that even if we did lose the customer prior to their contract ending we still have the equipment, which we can redeploy to another customer.
Assuming a fixed amount of capital one can grow at a faster rate with leasing than without. However, that isn't the end of the story as growth can lower your capital requirements. This is because there are many cost thresholds in our industry that must be considered. For example, it is well understood that bandwidth is cheaper the more of it you commit to. Of course, it is foolish to commit to too much bandwidth simply to reduce the cost per meg only to pay in total beyond what you can justify. You can only justify more bandwidth by selling more bandwidth i.e. customer growth. Therefore, the simple act of growing can reduce your costs on a per customer basis. Unfortunately, that isn't the whole story on even this one small point because of the physical aspect of bandwidth, the circuit. Each circuit has a fixed cost and a fixed capacity regardless of the amount of bandwidth you commit to on it. Therefore, you must attempt to get the most efficient use of your circuit by maximizing its capacity. This means that you will need to buy a larger capacity circuit you can grow into, which means that every month you aren't selling customers hurts.
The above can be shown with any number of overhead items, I just happened to use bandwidth.
-Matt Tom DeReggi wrote:
The problem with Leasing, is that you ahve to keep your clients longer than your leases. Historically, WISPs make logrithmic growth with each year having more growth than the year before. Usually the profit from old business (subs with paid off leases), rarely covers costs of growth, as the growth in later years is so much grander. Sure leasing helps growth and makes the books look good. But what happens in your last year? The one where you potentially could loose all your subs? The year that you just had your largest growth, and largest amount of dollars on Leases for reoccuring liabilities. Will your business then last 3 more years to pay off those leases? The problem with Finance, is it gives people a fake sense of success, and while deferring payment, it allows upfront moneys to be spent more wastefully because it is there to spend. There is always a grand plan of how that money will be used to improve business, but do things always work the way they are planned, and do you ghet your money's worth? There is something to be said for the business man that believes in old fasion values of a dollar earned and a dollar that can be spent, apposed to spending tommorrows dollar today and deferring todays liabilties to tommorrow. It order not to loose your butt leasing, one must predict accurately the date of their end came, so they know when the leases have to be paid off. What if you aren't bought, as predicted at the end game? One of the things I've learned is that when you are eating fat (money available), people get lazy. When you are hungry and wondering how you are going to pay tommorrow's bill, all a sudden their is an urgency to succeed that not only is urgent but essential. Its amazing what a person can accomplish when they are backed against the wall and have no choice but to do it. Its amazing how much someone can save when they ahve a tight budget to conform to, and they know when the money is gone the money is gone. Wether it makes sense to lease is not the golden question. The golden question is, how will you spend the money that becomes available because you leased. That is what will seperate the winners from the loosers.One of the most basic concepts there is in accounting is, its much more beneficial to reduce your costs $100, than to make $100 more income, because the $100 income have additional costs that grow with it. I think leasing makes sense if you get good terms, and are short on cash flow, but if you are not frugal in spending along the way, one is just deffering their death by leasing.Whats important is that the money spent, has something tangible and of value (holds its value on a reoccuring basis). Things like high salaries that are spent and gone, or technology greater than one's need in a business with falling prices and rapid advancement, are monies spent that have little value after the fact.Disclaimer, this comment does not negate the importance to determine the amount of capitol (cash) that will be needed and securing it before progressing with a business plan.Tom DeReggi RapidDSL & Wireless, Inc IntAirNet- Fixed Wireless Broadband ----- Original Message ----- From: "Rick Smith" <[EMAIL PROTECTED]> To: "'WISPA General List'" <[email protected]> Sent: Tuesday, October 17, 2006 3:48 PM Subject: RE: [WISPA] Are you making money?exactly the mistake my company made. Shoulda, woulda, coulda leased... 'cept in NJ, it's $125 contract labor, and $244 for installation (199install / 45 first month), oh and no free towers, they're all (16 of them)$500 / month / each at LEAST....No free lunch. So to answer the previous question #3, no you will not bemaking tons of money - you will be eating your shirt :) -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of Travis Johnson Sent: Tuesday, October 17, 2006 3:24 PM To: WISPA General List Subject: Re: [WISPA] Are you making money? Hi, Although he has spent some time and efforts, many of his numbers are WAY off: $50 installs (contract labor) customers paying $360 for installation$40 per month ARPU (for a startup WISP is not realistic today with $15 DSL)Just taking the installation numbers away completely changes this sheet...we are doing $99 installs and include a free Linksys wirelessfirewall/router. So now instead of making $15 per install, he will be losing $246. So now after 2 years, the company is making $11,736 per month profitbut still shows $42,000 in debt (from the first 2 years) and hasn't paid anything back to the investors, banks, etc.Now, if you use the same sheet, lease the CPE ($5/mo per customer) and stillbuy the Linksys router for $40, the company is making $18,800 per month profit and has $98,000 in cash after 2 years. ;) Travis Microserv Brian Rohrbacher wrote:http://www.dslreports.com/forum/remark,17086669 I have not got to the spreadsheet, but the post was well worth the 5 minute read, and I'm looking forward to getting some numbers down on the spreadsheet. I think this could help some of us. Brian-- WISPA Wireless List: [email protected] Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/ -- WISPA Wireless List: [email protected] Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/ -- No virus found in this incoming message. Checked by AVG Free Edition.Version: 7.1.408 / Virus Database: 268.13.4/478 - Release Date: 10/17/2006
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