Tom,
The idea is that you lease the CPE equipment. It costs you $5 per month
per sub (using $149 CPE), and you are breaking even on the install. So
from day one I am making money on the sub (and generating positive cash
flow). I can then use that money to grow the business (more bandwidth,
bigger routers, more towers, etc) and continue over and over and over.
Also, because I can lease 250 CPE at a time, I am getting a better
price. Let's run some numbers:
Trango 2.4ghz CPE = $475 in single quantity
36 month lease on same CPE = $12/month = $432 total cost
So, even though I am paying interest for 36 months, the actual cost of
the radio is less, but I don't have to come up with money for each sub
that I install. Instead I am able to "run" the business from day to day
without having to "get over the next hurdle". I can pay good salaries,
have nice office space, etc. because the business runs cash flow
positive from day one with EVERY customer.
Plug the numbers into that spreadsheet that started this discussion and
see which business model you would rather own in 2-3 years. There is
nothing wrong with debt... you just have to manage it correctly. Each
lease becomes an "operating expense", just like bandwidth, tower rent,
etc. The best part is in 3 years, you own the CPE. Even if only 80% of
them are still operating, that's 80% new CPE you don't have to buy. ;)
For what it's worth, the "tax write-off thing" always gets me too.
People almost talk like it's free money or something, instead of the 70%
expense it really is. :)
Travis
Microserv
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'" <wireless@wispa.org>
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 (199
install / 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 be
making 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 wireless
firewall/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
profit
but 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 still
buy 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
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