Gadgets Leasing Startup Financial Model Excel

Disadvantages of an Operator Contract

Operator contract

Customers are asked to enter into an operator contract and to abide by its terms for the entire contract period. However, the terms of the contract put the customers at a disadvantage, as these companies charge very high call and internet usage rates. They also put a limit on internet use on the phone, usually up to no more than 2 GB of data a month.

Taking into consideration all mentioned above, we were approached by one of our clients who had this unique idea of providing gadgets to customers on a lease without a service contract. The point was to build gadgets leasing financial model.

Leasing

Leasing a gadget is a convenient payment option suitable for any budget. Obviously, the client wanted to estimate the financial impact of this investment strategy. The customer’s business model was to provide gadgets to clients on a lease from three to twelve months.

Of course, the customer, after using this gadget, has an option to buy back or renew the contract option after the agreed lease term. They also have the possibility to return the gadget at the end of the lease term. Since there is a huge market for second-hand cell phones, tablets, etc., the likelihood of selling the gadgets in the second-hand market is good.

Client’s Expectations

Financial plan

Before investing resources, it is vital to prepare a financial plan and forecast for your business idea to see whether it’s cost-effective and profitable after all. So, the client asked us to evaluate their business idea — gadgets leasing financial model — and to check its financial viability. In addition, the client wanted a comprehensive, investor-ready pro-forma financial solution.

Flexible business assumptions

He wanted a financial model that incorporated various flexible business assumptions. Finally, a sensitivity analysis for the project was requested to show the impact of customer default rate and customer re-activation rate on net profits.

Financial Solutions

We prepared a financial model for the client that incorporated the following features. There are many revenue streams involved in this business idea.

The client can generate revenue from multiple streams:

• Leasing interest
• Revenue from providing additional services such as cloud storage and virtual repairs
• Buyback margin
• Second-hand market margin

The costs involved were as follows:

• Cost of purchasing new gadgets
• Customer defaults
• Insurance premium

Gadgets Leasing Financial Model Description

Financial model details

The prepared financial model included core assumptions about the market condition, customer trends, and buying habits. Besides, the included assumptions were flexible to changes, and they can be scaled up or down to see the impact of different variables on the business revenue and profits. It also included a sensitivity analysis for the project to show the impact of customer defaults and reactivation rate on profits.

This is a central tab of the whole leasing financial model. So, here are the core assumptions that were included in the model.

On the left-hand side in the Dashboard, you can find assumptions related to:

• New contract counts
• Leasing product allocations and terms
• Buybacks
• The second-hand gadgets market

At the top, you may see assumptions related to:

• Workplace cost per each company’s employee
• Credit line and loan terms
• Taxation and dividends
• Discount rates for the company valuation using DCF

Breakeven point built with leasing financial model

These charts show how many contracts a company should acquire to reach a breakeven point. The income statement highlights breakeven revenue and contracts.

Sensitivity Analysis

1. Contract Default rate, % — The first one shows the percentage of defaulted contracts — in other words, how many we can lose in the leasing principal and interest.
2. Contract Re-Activation rate, % — The second shows how many active contracts will be activated for the new leasing contract.

We built a sensitivity analysis for the Net Present Value of the company’s Unlevered Free Cash Flow based on data table of two factors:

These two assumptions are entered at the left-hand side of the Dashboard. However, here, in the sensitivity analysis, the client can see all the variations of these two factors and see the impact on Net Present Value immediately. Therefore, the customer saw multiple scenarios in one place.

Top Revenue

We built a diagram for the client so that he could make a prediction for each of these sources of income.

• We determined the top five revenue categories for this business model. These are:
• Revenue from 6-month leasing
• Revenue from 12-month leasing
• Second-hand market sales
• Additional products
• Insurance

Top Expenses

Furthermore, we identified the top five expense categories that exist in this type of business, for example:

• Total salaries and wages (as in every business)
• Advertising
• Public relations
• Cost of goods sold (for 12-month leasing contracts)
• Charge of goods sold (for six-month leasing contracts)
• Price of goods sold (for three-month leasing contracts)

Also, we explained details about expenses and calculations in a separate datasheet.

Valuation

The valuation report shows us the estimated cost of the company, including such parameters as cost of capital, cost of debt, and weighted average cost of capital. Thus, this assessment helped the client analyze the situation with assets of his company realistically.

Financial Statements

Summary

We built detailed reports for the client with analysis by month that include a Balance Sheet, Income Statement, and Cash Flow Statement, and illustrated the analysis with graphs. For ease of comparison, we prepared a shortened version of the reports displayed on a Summary Sheet. If the client wants, he could get as a detailed report as needed for work.

To sum it up, the financial model for the gadget leasing business idea was built with the maximum specification for this bunch. Our team of experts did their best to make reports comfortable for analyzing results while changing output data. Lots of detailed reports should help the client make relevant assumptions and make important decisions easily to launch a successful company.