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Should I start my own party rental company?

The short answer is:  Probably not.

If you’re serious about getting into the business, please read through this FAQ for a primer on the inflatables industry.

 

Background

The average life span of an inflatable operator in Colorado is about 3 years.  The inflatables industry is very well established, profit margins are thin, and the competition is tough.  It takes about three years for someone entering the market to figure out that they aren't making any money, or enough money to justify the work.

  

A Typical Story

Often, an inflatable rental customer sees the work it takes in their backyard to setup a bouncer, measures it against the amount of money he paid, and he thinks “Hey, I could do that!”  Let’s call this customer “John.”  John’s next step is often calling a manufacturer and speaking with one of their sales staff.  They will tell John that it’s a great business that’s easy and lucrative.  John is now excited and he’s ready to buy.  Few inflatable operators do a complete business plan that might help them balance the glowing story they just heard from the inflatable salesman.

John is now sold!  He saw the work, and it didn’t look too bad.  He knows how much he paid, and it seemed like a decent amount of money.  A manufacturer offered him a good deal, and it looks like the inflatables will pay for themselves fairly quickly.  He makes the purchase, get his business license, and he’s ready to go.  It’s usually a few weeks into the commitment that the other shoes start to fall, but he’s invested all this money now, so it’s too late to turn back.

Two to three years later, John is selling his inflatables for pennies on the dollar.  He is tired, worn out, and happy to be done with his venture.  He only wished he had made just a little more money to make it worth the ride.  How did he get here.  The reality of operating an inflatable rental company is much more complex than meets the eye.  Most entrepreneurs like John find this out the hard way.  I’ve met a lot of people on their way out of the industry and they all have the same story.  As John went through his first year in business, he found out the following:

 

Insurance

You can operate without insurance, but this is careless, risky, and irresponsible.  Inflatables are high liability devices, and operating without insurance puts the public, you, and your family at risk.  In addition, there has been substantial debate in local government about regulating inflatables.  In the near future, it may not be possible to operate without insurance, so you should build your business plan with insurance as part of the equation.  You’ll want to get a quote on insurance before you buy anything.  Don’t be surprised if you get quotes of between $1,500 to $3,000 per inflatable per year.  Yes, that’s right, PER INFLATABLE, PER YEAR.  If you start with three inflatables, be prepared to pay an insurance bill of between $4,500 and $9,000 per year.

Many people who get this quote after they've already bought inflatables continue to operate without insurance.  This may no longer be a feasible option considering possible changes in the legal environment.  The other thing you find out quickly is that you can't do work for businesses, schools, and public venues unless you have at least a $1,000,000 insurance policy.  In the old days, John would go without insurance and hope for the best, but he’d still quit in two to three years.  Read on to find out why.

 

Licensing

Each city in Colorado has its own rules for doing business within their city.  They each have their own procedures for being licensed, collecting and remitting sales taxes, etc.  To be completely legal, you need to have a business license for each of the cities that you operate in, and collect and remit each city’s sales tax regularly.  This doesn't sound too bad until you discover that there are about 40 “home rule” cities within the Denver metro area!  

Each city has different rules, procedures, and tax rates that you need to keep up with.  Cities include Denver, Lakewood, Arvada, Thornton, Westminster, Greenwood Village, Englewood, Parker, Littleton, Aurora, and on and on.  Some of these cities have occupational privilege taxes, some of them do not.  All of them have sales taxes and all of them require you to get a business license to operate within their city.  Many companies just decide to skip all this complexity and hope they don’t get caught.  John ran under the radar, but he’ll still quit in two to three years.  Read on to find out why.

  

Marketing

Very quickly, you figure out that marketing costs a lot of money.  So you save some money by primarily doing word of mouth advertising.  You get a rental here and there, but that insurance bill keeps coming year after year.  So you buy a small listing in the Yellow Pages, and you get some work that way, but you find that to compete with the bigger companies, you have to lower your price a little bit, further pinching your profit margins.  The bigger companies can spread that advertising cost over 30 or 50 or even 100 inflatables, so you’re finding it hard to get good marketing at the right price.  Despite this John pulls down some work and he’s bummed that he’s making less money, but this isn't the real problem.

  

Who’s Answering the Phone?

John hasn't let go of his day job, which is smart because he’d be in bankruptcy if he did.  He’s taking messages during the day and working inflatables on the weekends.  He finds out pretty quickly that unless his prices are substantially lower than the larger companies, people just go with the larger companies.  The larger companies answer their phones, so often when the choice is leave a message with John’s company, or hang up and call the next number, they hang up and keep calling until someone answers.  The old-fashioned term for that is “customer service,” and if you can’t answer your phone during the day, you can’t provide good service.  Often, a ringing cell phone at a day job can create stressful conditions as well.  So John lowers his prices a bit more to make up for the inferior service, and that pinches his profit margins a little more, but that’s not the real reason why he quits.

 

Short Season + Overhead = Financial Trouble

In Colorado, you have an 8 month season to do the majority of your work.  Once the snow starts to fly, you can count on an occasional rental for the next four months.  The larger companies have enough work to keep an employee or two busy, but that’s mostly repeat business.  There isn't a lot of new business to compete for through the winter.  The problem comes when your overhead costs keep coming without any work.  You’ll keep getting bills for insurance, advertising, phone lines, supplies, etc. but there’s no cash flow coming in to offset the cost.  Approximately 10% of all businesses in the inflatable industry die each year because of poor winter cash flow.  This is not the most common reason for going out of business though.  John will go out of business for a different reason.

 

Only Two Working Days Per Week

John’s rentals will fall primarily on Saturday, with some rentals on Sunday.  He will get an occasional weekday rental that will be hard to fulfill because he has a day job.  He may just choose to turn down weekday work.  This would be a good idea since, between his day job and odds and ends for the business, he’s pretty busy during the week.  The weekend thing was one of the original draws to the business, that it wouldn't conflict with his day job much.  Unfortunately that benefit is also a challenge since it's very hard to make a living with only 2 days of work available per week.

  

Logistics Problems

John saw the work in his backyard, and it didn't look too bad.  What he didn't see is the steady stream of logistics problems that delivery companies experience.  He’s loaded his trailer and he’s on the road.  What could possibly go wrong?  How is he going to deal with any number of the following common logistics problems:

  1. Vehicle trouble.  John’s truck is making a funny noise, or he gets a flat tire.  He’s on a tight schedule.  How is he going to handle this?
  2. The customer is late.  He’s at the customer’s house but nobody is home.  He’s on a tight schedule.  How is he going to handle this?
  3. Bad Traffic.  John is stuck in bumper to bumper traffic.  He’s on a tight schedule…
  4. Something changes.  The customer changed the location of the party, but didn't tell John that he’ll be setting up on pavement instead of grass.  He shows up to the setup location with stakes, not sandbags.  Does John go without anchoring on this one?
  5. Bad directions.  John finds himself on the wrong side of town because he forgot to type in “S”  for 8500 S. Broadway.  He’s on a tight schedule…
  6. Equipment malfunction.  John sets up and turns on the blower to find out its dead.  He doesn't have a spare and he’s on a tight schedule…
  7. Forgot something?  John forgot something simple, like a dolly to move the equipment around with.  He’s on a tight schedule…
  8. Injury.  John’s back is feeling a little sore after moving inflatables around without a dolly.  Should he continue and risk serious injury?
  9. Cold and Flu.  John’s got a nasty cold…

One of these things happens to larger companies every weekend.  They typically have some kind of backup to handle these problems.  John is a one man show, and nobody’s got his back.  Any one of these things turns into a very stressful situation, and will translate into losing hard earned business and making customers angry.

 

Cleaning, Oh Man, Do I have To!?

After a long weekend, your stuff is dirty, sometimes wet, and it needs to be cleaned.  If you don’t clean your equipment, it’ll get smelly and customers won’t be happy.  John now has something to do on weekday evenings after he’s done returning messages and doing paperwork.  Many small companies handle this kind of annoyance by just not cleaning their equipment.  You can go that route, but people won’t pay much for it.  You’ll have to lower your prices again once the word gets out that you’re the nasty castle company, further pinching your profit margins.  If you decide to be the nasty castle company, you’ll need to give up the idea of having return customers as well.

 

Paperwork

Rental agreements, license administration, sales tax administration, income taxes, maintenance logs, insurance paperwork, government forms, banking, paying bills, etc.  I guarantee you John will be surprised at how much time he spends doing paperwork.

 

Hard Work + No Breaks = Burnout

Of all the problems John has experienced above, this will be the worst one, and will eventually lead to him quitting.  John will figure out after a year or two that he can’t make enough money to quit his day job.  Once he’s paid for fuel, supplies, labor, cleaning equipment, moving equipment, towing equipment, office supplies, advertising, phone bills, etc, there just isn't enough left over to quit his day job.  Sure he’s turned a small profit, but he really didn't want a second job.  This was supposed to REPLACE his day job!

After the first year, he’ll say “Maybe next year will be the good one.”  The second year will come around and it might even be a little busier than the first, but it still won’t be enough to quit his day job.  By the end of the second year, he’s doubtful, but he might give it one more year.  He’ll tell himself the same thing, “Maybe next year will be better.”  By the third year, he’s doing repairs on his equipment, and it’s clear he doesn't have the money to buy new equipment to replace it.  This is typically the last year.

 

The Numbers:

Here are the numbers that John should have run before he bought his inflatables.  His desire to get into the business might have been different if he’d done a more complete business plan.  The following numbers are for one bounce house.  The most one person can do is about 6 bounce houses, and that’s working 14 hour days on the weekend.  Take this number and multiply it by the number of bounce houses a small company might own (usually 3 to 6) and you can see why John can’t quit his job.

 

Estimated Revenue (50 rentals @ $160)           $8,000 (assuming clean castles and slightly inferior service)

Expenses

 

Fuel (4 gal per rental)   $600

Auto Maintenance   $600

Labor (@ $10/hr)   $1,250

Advertising   $500

Repairs   $150

Depreciation (assuming a 5 year life)   $300

Insurance   $1,500

Government Fees   $150

Supplies (Towing, Office, Field, Cleaning)   $500 

Phone Line   $500

  

Total Expenses   $6,050

 

Net Income   $1,950

 

Multiply the figure by the best case scenario of 6 inflatables for one person, and you have annual profit of about $11,700.  Add in the labor assuming that John will be doing all of it and not paying himself for cleaning and administration, and you’ve got an additional $7,500.  A total best case scenario income of $19,200 before taxes is not enough to quit a full time day job.  There is simply no way to increase this dollar amount without hiring people either.  Six inflatables will keep John extremely busy on the weekends, and there simply isn't any more work to be had during the week.  He’d also have to make it all the way through the winter with virtually no work at all.  He could hire people, but now he’s adding a huge level of complexity and administration.

In the best case scenario John will be working full-time hours on his business, probably a little more.  He'll put in 25 to 30 hours per week on the weekend, and another 10 to 20 hours during the week prepping and cleaning.  The net per hour may come in lower than picking up a part-time job depending on John's skills.  The big difference though is that a part-time job doesn't carry the same risk and stress and trying to start a business.  With a part-time job, John goes home at the end of the day and forgets about it.  A business keeps him up at night and constantly beckons John to do more.

  

The End Result

After three years, John is simply burnt out.  He’s made a little bit of money, but he’s been working too much.  He has his day job Monday through Friday.  When he gets home from work, he spends his evenings cleaning inflatables, returning phone calls, and doing odds and ends that need to be taken care of for the business.  He’s also been printing the coming weekend’s paperwork and performing other administrative tasks like paying bills.  He’ll spend his entire Friday evening planning for the weekend and creating his delivery route.  He’ll work all day Saturday and most of the day on Sunday with a few hours to spare at irregular intervals.  He’ll put 400 to 500 miles on his truck each weekend (an extra 15,000 miles a year) just delivering party equipment.  Those miles will be hard miles for his truck, most likely towing a trailer loaded with quite a bit of weight.  This will decrease the value of his truck substantially over those three years, and increase his maintenance costs.

If John is a family man, he will miss his family dearly 8 months a year.  He’ll be working 7 days a week through the summer.  There’s a common misconception that people in the party rental business like to party.  People in the party rental business are actually working while everyone else is partying.  John will be working holidays, and if he has children, he’ll be feeling quite a bit of pressure to take some time off for their birthdays and special occasions, which typically take place on weekends, his busiest time of the week.  In short, John will be overworked and burnt out.  He’ll be ready to give it up at the end of the year, when his inflatables are worth the least.  Used inflatables sell for a fraction of their original price, so he won’t get much when he quits.

  

If You've Made It This Far

If you've made it this far into this FAQ, you’re pretty serious.  I would suggest you start by working for someone else.  This will give you a good idea of how difficult the work is, and how bad the hours are.  If you decide it’s not for you, you can just quit, and at least you pulled a paycheck.  We hire lots and lots of drivers starting in April, and we keep hiring people all the way through October.  We are constantly hiring because most people find the work to be harder than they were expecting.  About two of every three drivers that we hire find the work too difficult.  On the plus side, our drivers make excellent money, and they don’t carry the risk of operating the business on their shoulders.  When they finish their work on the weekend, they go home and don’t worry about everything else.  The administration and worrying is someone else’s job.  They can take days off like their kid’s birthday, or their own birthday, or just a mental health day here and there, and they don’t have to worry about losing business to do it.  Someone else will fill in for them.  

If John would have come to work for us instead, he would have probably made more money, and he would have been much happier in the process.  How is this possible?  Larger companies like Blaster Bouncer take advantage of economies of scale.  Since we have thousands of rentals every year, we can schedule them more efficiently.  The volume of work allows us to perform our cleaning and administration more efficiently as well.  All of these cost savings allows us to pay our employees more, and still turn a small profit.  Since we have a large volume of rentals, we don’t need to turn a huge profit on each one to keep the business going.

If you still want to get into the party rental business, be prepared for all of the above.  It’s a hard business with hard labor, but can be rewarding for the right kind of person.  If you’re on the fence and you’d like to talk to someone about it a little more, feel free to call us and one of the owners will make some time for you.  The best advice we can give you here is to be sure you do a complete business plan using the information above.  In addition, put some serious thought and consideration to the non-financial side of this venture, such as the time you spend with your family.  It will have a huge impact on your ability to succeed.