How to Start Equipment Leasing Business in Nigeria
Equipment leasing is one of the simplest ways of financing your business, yet a lot of people fail to notice this. It may not necessarily increase your income but you can be rest assured of significant savings which can be invested in other aspects of business.
In this write up, you will learn the basics of equipment leasing and have the conviction that it could sponsor your business.
What is Equipment Leasing?
Equipment leasing is an agreement in which a business firm rents the equipments needed for its activities for a specified period of time and at a specified cost.
At the end of the specified period, the lessee (business) may decide to buy the equipment rented at its market value (or at any agreed amount), extend the period or return it to the owner.
The main benefit here is that there is significant cost savings compared to buying the equipment. This serves as an alternative to cash strapped businesses. It also aids entrepreneurs who have the plans to bootstrap their way to business success.
3 Things to Keep in Mind Before You Start an Equipment/Property Leasing Business
Like all other businesses, the equipment leasing business has its own critical success factors.
Here, I’ll list three important things you need to know before venturing into this business.
- It is capital intensive: The business is in existence because not everybody can afford to own all equipments needed for their business. The reason why clients will hire equipments is because of the high cost of purchasing them which is what will keep you in business.
- The equipments you have are the essence of the business hence, take good care of them.
One of the interesting things about this business is that you’re making money as long as your equipment is with a customer. A reason why you need to strive to keep your equipment in a good state all the time’
It is your responsibility as owner to make sure there are regulations to ensure the equipments are managed, maintained and operated properly. It is important to maintain as at when required to avoid breakdown.
- The terms and conditions for hiring must be very clear
As you are the owner of your equipment, it’s your responsibility to ensure they are properly utilized by having clear terms and conditions for their use. If this is not done, your equipment may be badly operated and damaged
Types of Equipment Leases
There are two types of equipment leasing arrangement which are:
1. Operating Leases
This is also known as service leases which procure for both financing and maintenance. The owner is responsible for protecting the equipment as the lessee uses it.The cost of sustaining the equipment is usually worked into the rental price to be paid. Office copiers, trucks, medical diagnostic equipment, computers and automobiles are examples of equipment categorized under operating leases.
2. Financial leases
This is also known as capital leases and is markedly different from operating leases as they do not provide for sustenance and cannot be cancelled. They are commonly in place for a period equal to the useful life of the equipment. This is also known as service leases which procure for both financing and maintenance. The owner is responsible for protecting the equipment as the lessee uses it.
The cost of sustaining the equipment is usually worked into the rental price to be paid. Office copiers, trucks, medical diagnostic equipment, computers and automobiles are examples of equipment categorized under operating leases.
PRACTICAL STEPS TO STARTING AN EQUIPMENT LEASING BUSINESS IN NIGERIA
Study your market
It is very important to carry out a market survey to know the needs of your potential customers. This because under the same business, there may be widely different needs of customers as a bike rental downtown will have various customers than one by the beach, and they will totally have different needs.
The best way to go about this is to interact with the potential customers
Write a business plan
A business plan is very much needed before going to this business most especially if you intend borrowing. Having a well researched and viable plan makes you have access to loans from financial institutions like banks. A typical business starts with an executive summary which will include the structures and the core values of your business.
It should also include the items you intend to lease and a market evaluation which will state the target market for your business.
It should also have summary of how your plans would be implemented and a strategy for the functioning of the business. A management summary is also expected. Useful samples of business plans can be found online
Investigate the costs.
This type of business requires a high start-up capital. As it is a business which works by purchasing equipments and leasing it out to others, there is need to develop a significant stock of equipment before starting the business. Have in mind the potential cost of developing the needed stock and draw up estimates.
This study on the market, the potential returns on investment and costs will be needed when putting down your business strategy
Don’t buy more, buy smarter
The type equipment to purchase can be known from the study of your potential/target market. Avoid idle inventory by all means as it takes up money and space which could be put to profitable use.
Don’t spend too much at the early stage, buy the minimum possible initially and buy more at a later time based on demands.
Find the best deal for your equipment
You need to make the most out of every penny you spend on purchasing equipments. Since equipments are the essence of your business there is need to invest in them carefully. Instead of spending all of your money on the best and newest equipment you can possibly find, consider your opportunities.
Get your paperwork in order
The work to be done is heavily relies on your location. Besides the procedures of starting, there are excess insurance liabilities in this business.
Also, your business depends on non employees putting your equipments to use.
Create partnerships
The important question is “What other services or products are my customers in need of?” If you intend starting a bike rental shop, your clients may also need:
- Place to stay- hotels, bed and breakfasts.
- Places to visit- amusement parks, zoo, museums…
- Things to do- restaurants, shopping malls…
Find the right tools for your business
As you are into business, you need to look into more than just renting equipments. Communication with potential customers, employee management, accounting etc should be looked into. Luckily, we have a list of approved business applications for you.
Treat your equipment right
No doubt about the fact that no equipment, no rentals. This is the reason why you need to take very good care of your equipment inventory:
- Regular maintenance – fix faults before customers do
- Prompt completion of repairs should be ensured- fix any issue as fast and thoroughly as possible
- Cosmetic repairs- your equipment needs to look like new as well. Maintain a good aesthetic appeal for your equipment to make a good impression on customers.
Create a waterproof agreement
Avoid arguments with your customers and ensure that you are on the same page by having a concrete agreement on your terms and conditions such as:
- How the equipments should be operated- what is the acceptable wear and tear?
- Where and when does the lease start and end?
- Which action should be taken by a customer when something goes wrong?
- What are the penalties for loss, theft, damages, and late returns?
- To prevent disagreement and confusion in your dealings with customers, provide answers to the above questions
Build up your business’s physical infrastructure
You can start to make your plans a reality after taken care of the steps above. A strong physical infrastructure will be needed to meet the needs of your customers.,
You will need a good space to keep your equipments and an office space to supervise your business depending on which aspect of the business you focus on. There will also be need for staffs and vehicles to supply the equipments being leased out
Register your business
To operate lawfully, your business needs to be registered with the appropriate government agency in charge of business registration usually the corporate affairs commission. Business license application forms can also be found at city hall.
CONCLUSION
I believe going through all above, you should by now have a very good idea of how to go about turning your rental business or your plans to have one into a stunning success. All you need to do is to bring all these ideas into a formal business strategy- a business plan. A business plan is very much needed keeping the saying in mind- failing to plan is planning to fail.
