Best way to fit out your gym
Business owners have two financial options when it comes to obtaining gym equipment; buying or leasing. Each has its advantages and downsides. Choosing the right one will have you opening the doors to your new facility a whole lot sooner.
Leasing involves an agreement between the lessee and the lessor. The lessee (you) has access to the equipment in exchange for regular lease payments. However, the lessor still has ownership of the equipment until the end of the lease period. At this time you usually have the choice to give the gear back or purchase it for an agreed-upon final lump sum. By buying equipment you become the legal titleholder (or the financer does if it is purchased by way of a loan or hire purchase). Whichever option you take, you will still likely be the one responsible for servicing and repairs of the equipment (depending on the terms of your lease agreement).
The type of equipment you are purchasing, the future tax implications of your choice and cash flow management will form the basis of your buy vs lease analysis. In particular, consider the following:
1. Gym equipment purchases are usually always for long term use
The overall cost of owning your own machines is likely to be much cheaper than renting them. If you have sufficient start-up cash to make such a large purchase buying gym equipment will be a smart investment. Generally, the less complex the item and the fewer moving parts, the more sense it makes to buy it. For example, there are only a few things that can go wrong with a barbell and it’s unlikely to be ‘out of style’ in the near future.
If you wish to fund the purchase via a loan most financiers offer flexible payment options and repayment terms (particularly if you are able to provide a sizable deposit). Loans are often less costly than leases but can be harder to qualify for. However, you need to take into consideration any additional borrowing costs that might arise such as establishment fees and increases to repayments should interest rates rise.
2. You’ll need start-up cash for running costs, not just equipment
Taking the leasing route will free up cash for other purchases. Will you need to fund a large fit-out of the premises? Do you need 6 months or more of running costs put aside while the business is gaining momentum and becoming profitable?
Exercise fads come and go. Leasing gives you access to the latest and greatest equipment as and when it becomes available on the market. If your facility wants to keep up with the latest trends this option will be far more financially feasible for you. Some leasing suppliers (but not all) will carry out servicing and repairs at a fixed or agreed-upon cost. This means maintenance expenses are predictable and known in advance. You should also have the opportunity to exchange equipment when it is broken, faulty or unused.
3. Upfront advantages vs longer-term predictability
Purchasing will allow you to claim depreciation on the assets. If you are a small business you will be able to claim purchases of up to $20,000 immediately. If you have purchased by way of loan or hire purchase you will be able to claim the interest you pay also. If leasing, the periodic lease payments are deductible instead. In this equation, you will need to weigh up the short term tax benefits of higher deductions from purchasing, vs the even flow of lease payment deductions over the life of the lease agreement.
4. Signature gear or generic?
When buying equipment you have the ability to customise machines, equipment and cages with your logo, branding and colour scheme. Leasing equipment doesn’t allow this flexibility. The importance of this factor will depend on the look and design of your gym and the ‘feel’ you’re trying to create.
Overall, this is a matter of weighing up the after-tax value of each alternative now and in the future, and the cash you will have available when starting up your facility.