Light on cash
Stumping up the money for a laser or IPL machine can be a challenge. We look at the finance options that can help get you started and investigate how laser treatments can add to your bottom line
We’ve all heard that laser and IPL treatments are a growing area for salon businesses, helping differentiate treatment menus and more importantly increasing profit margins. And while this is great if you have the money to invest, it can be a struggle for those salons that do not have the capital or cannot get a bank loan to pay for the initial expensive outlay.
Over the last few years, as the economy has hit rock bottom, it has become increasingly hard to get loans from the banks. Small business and start-ups have had it particularly tough, as they often lack the collateral, credit rating, and consistent turnover of larger or more established firms.
In this year’s budget the Chancellor announced plans to help start-ups and smaller businesses through improved access to finance through a National Loan Guarantee Scheme (NLGS) in which bank loans to small businesses will be guaranteed by the Government and offered at preferential rates. Other financial options from viable creditors are also giving small businesses a helping hand in tough times.
It is important to think about why you want to invest in a laser machine and whether the financial commitment is worth it for your type of business.
Tony Holton, managing director of leasing and finance provider Professional Beauty Finance, has noticed that the main objection to any new investment is the cost of the equipment, or proof of concept. He says: “Many suppliers fail to provide a compelling business case for the salon owner to make an easy decision on the investment.”
Meanwhile, Josh Yardley, partner at Cosmedico Medical, which manufactures laser hair removal and cosmetic skin treatment machines, says: “Fundamentally the cost of perceived financing of IPL or laser machines does put a lot of salons off.” However, he also feels that this may not necessarily be a bad thing. “The salons need to think about their capital expenditure before investing,” he says.
Yardley suggests that salons and spas seriously thinking about offering IPL or laser treatments should consider the following points:
Does selling treatments at £100-£700 fit with your salon ethos?
Do you offer any other technical treatments, such as microdermabrasion, and do your clients feel comfortable with these procedures and the costs involved?
Is your customer base big enough to sustain laser and IPL costs? For example, can you sell two to three treatment courses a month for three years, as this is what is usually required to cover the cost of financing a machine?
Professional Beauty's June Insider survey revealed that salon owners who have either got a laser machine or are thinking about it, have (or will) finance it through rental options such as renting to buy.
Most suppliers offer their products through a rental agreement, which allows the customer to pay for their equipment over a three, four or five- year period.
“If a supplier operates a rental proposition for their machine, it can demonstrate to the salon owner that they can cover the costs easily and keep cash within the business to ensure that they survive during leaner times,” says Holton.
Finance companies such as Professional Beauty Finance, offer salon businesses and therapists the chance to rent or lease beauty equipment. Salons often think that finance is harder to obtain if you are owner operated or run as a sole trader, so Professional Beauty Finance offers underwriting schemes to reflect this. “As long as the business has been trading for three years, we will lend the salon owner up to £12,500 plus VAT with no accounts or financial information required. They just need to have a clean credit history,” says Holton. The company also offers a start scheme for salons that have been trading for less than three years. It is more expensive but will still allow the option to invest in new equipment.
PB Finance also works with the supplier to educate them about return on investment (ROI). Holton uses the example that if a machine cost £5,000 and a typical treatment is around £50; the salon owner has to perform a minimum of 100 treatments before they see ROI. “By using a finance instrument to purchase a machine with typical monthly payments of £172.50 (based on a three-year agreement), the salon needs to do three and a half treatments a month to cover the cost of the equipment,” he says.
Another finance option is to use your salon credit card machine to raise capital. PB Finance offers this over a 12-month period. Similarly, new finance company Ashley Retail Finance offers businesses cash advances ranging from £3,500 to £25,000, based on the salon’s future sales. The finance is then paid back via credit and debit card sales made using the business’s PDQ terminal, typically over a six-month period. The Government is also helping businesses with access to finance with the National Loan Guarantee Scheme, launched in March. The intention is to help businesses access cheaper finance by reducing the cost of bank loans by 1% on the interest applied to the loan. The Government has £20bn worth of guarantees from unsecured debt, reducing the risk and therefore the cost of lending. To be eligible, a business must have a turnover of less than £50m.
WHAT THE BRANDS OFFER
Ecolite offers lightweight IPL systems designed for beauty therapists and medical professionals. The cost of Ecolite’s Version 9 machine with two handpieces (totalling 140,000 shots) is £9,950. Ecolite offers finance packages on a case-by- case basis, including anything from no down payment, to £250 and £350 a month, so a salon can cover its monthly payments with one or two treatments.
Lynton Laser offers rental contracts where salons supply one month’s rent up front and can then opt for an easy pay option, which gives them a month’s holiday to begin with to help with start-up costs. Lynton also offers a lease purchase agreement where the salon pays 10% of the equipment value first as a deposit, then makes repayments over 36 months.
Caci is more known for its non- surgical face lifting and orbital microdermabrasion machines; it does however incorporate light-based technologies into its systems. Managing director Dean Nathanson estimates that 70% of its UK systems have been supplied on a rental finance basis. Caci offers rental finance with payments from less than £10 a day. This means salons need to book one client treatment course per month to cover their fifixed monthly rental payments and make a profit.
Cosmedico Medical Systems specialises in light therapy devices, designed for hair removal and a wide range of skin conditions. A typical costing for its SkinPulse IPL System would include a deposit of £1,350 (three months’ payments) followed by 33 monthly payments of £450. For its top-of-the-range 900 model a typical deposit would be £1,890, followed by 33 monthly payments of £630.
Businesses can only grow with the cash they generate, so rental options are designed for those that can only afford to pay a small amount each month.
“The key is to reduce risk while maximising reward. Finance options allow you to afford the machine and generate an income while paying off the capital expenditure in a structured and planned format,” says Yardley.
Following a three-year rental agreement, businesses can often opt to pay a title payment, which is a small percentage of the original invoice, to obtain ownership of the machine. “Salons can also choose to settle early but they have to pay the outstanding rental, usually at a special discount,” says Holton.
Businesses, however, should remember that machine equipment such as laser and IPL can become outdated as new developments in technology become available. “You don’t want to get stuck with out-of-date technology, as this could cause clients to go elsewhere,” says Holton. Most suppliers do offer an exchange or upgrade system at a cost.
Susan King, owner of Earth Spa in London, says: “The new machine market is a minefield but if you market your current machine correctly there is plenty of scope to grow your business as long as you are good at what you do.”
The laser industry is a booming business and more independent clinics are popping up since providers of lasers used for non-surgical cosmetic aesthetic purposes are no longer required to register under the Health and Social Care Act 2008. They are also no longer subject to regulation from the Care Quality Commission as of October 1, 2010.
Ellla Tracey, chief executive of medispa chain Destination Skin, says: “Independent clinics will continue to open simply because of laser deregulation. More salons are getting laser and IPL machines now because it’s a lot easier and more affordable to do so than when they were regulated.”
Energist is launching the VariMed diode laser into the UK market. The 810nm diode laser can be adapted to target different depths of the skin. Weighing in at 13kg, the machine offers a user-friendly interface to allow ease of navigation. It requires no consumables, meaning running costs are minimised. The handpiece has a sapphire glass cooling window that gives contact cooling down to 0°C, which provides skin protection during treatment.
Ecolite has introduced an extra-large applicator for its V9 IPL system to reduce the time and money spent per session by 40-60%. Ten shots cost less than 5p, so salons can offer a full-face treatment for £45 and stand to make £44 per treatment, assuming a treatment only uses 40-50 shots.
The German manufacturer has devised the SkinPulse 900RF system with radiofrequency (RF) technology to enable the treatment of both fair and dark skin types. The RF enhances IPL energy without disturbing the surrounding muscles or nerves. This combination of IPL and RF is said to provide effective and pain-free hair removal in skin types 1-5.
Syneron Candela has unveiled its new Motif laser, which it says is virtually pain free. Powered by Elos, the laser features the combined energy technology of laser diode light (810nm) and radiofrequency. Candela says the Motif’s deep dermal penetration allows treatment of all hair types including fine hair and the contact cooling device gives the client optimal comfort during treatment.
The Phaser 808 machine from Chromogenex offers hair removal for individuals with a wide range of skin types, tones and sensitivities. It features a thermal electric cooling system, which enables temperature selection according to skin type, and the hand-held applicator incorporates sapphire waveguide technology, which helps prevent damage to the surface of the skin.