Should My Gym Lease or Purchase New Equipment?
People choose which gym to belong to based on any number of different factors, but one common reason is the equipment. The majority of people want to see equipment that is up to date, in good condition, and user-friendly. In order for you to be successful as a gym owner, you need to make these provisions for your potential customers.
Whether you’re starting from scratch or looking to update your current facility, there is a lot of thought that must go into your equipment. You want your inventory to draw in potential customers and also serve the needs of current members, but this has the potential to be one of the most expensive parts of your business. Possibly the most important decision you make will be whether you want to buy or lease your equipment.
This might seem like an obvious choice for some and an impossible choice for others. but with the correct knowledge, you will be able to make the best decision for the long-term success of your business.
Once you’ve made your decision and your business is booming, you’ll need a way to stay organized. Request a demo of our fitness business management software to see how we can help.
What Is the Difference Between Buying and Leasing?
The main difference between buying and leasing gym equipment comes down to ownership. Think of it like choosing a new car. If you decide to buy one, you will likely seek out a lender to loan you money to pay the dealership. Once you reach an agreement, you are the owner of the vehicle as long as you continue making your payments to the lender. If you become unable to make your payments, the lender is able to take possession of the car in lieu of your remaining balance.
On the other hand, you may prefer to lease a car. In this situation, you are still making payments to a lender, but you are not the owner. The lease runs for a certain period of time and, when that period is over, you either return the vehicle to the dealership or can choose to purchase it for a lower price.
Fitness equipment follows that same structure. If you choose to buy, whether through a loan or a full payment, you are the owner. If you decide leasing is a better option, you agree to pay the owner for use of the equipment over a certain period of time.
Once you understand the difference between buying and leasing, you need to decide which method works better for your business. In order to do this, you need to understand the positives and negatives of each.
Benefits of Buying Gym Equipment
The overall benefit of purchasing your gym equipment, rather than leasing it, is the fact that you have ownership. You are able to keep it, as long as you’d like, until you decide to find replacements or upgrades. This ownership also adds value to your business in multiple ways.
It Gives You an Asset. Generally speaking, assets are good for any business. In regards to a gym, ownership of equipment makes it an asset, which is important if you ever made the decision to sell your business. You would be able to ask for a higher price due to the added value provided by the assets you have in the equipment. Despite the higher price, potential buyers might be even more interested because they do not have to spend the time or money to find new items.
You Can Sell It to Help Offset Upgrade Costs. Any way you slice it, new equipment is expensive. Paying the full price to upgrade has the potential to put your business in a less than ideal spot financially. However, if you own your equipment, you can try to sell your old inventory and use the money to offset the cost of the new pieces you want. This way, your old equipment has served two purposes and you are able to keep your facility up to date for current and prospective members.
You Can Customize It. Putting your own spin on the aesthetics of your facility can be one of the most fun parts. If you plan to purchase your equipment, you can customize it to fit the overall theme of your gym by choosing colors or putting your logo on it. When prospective members walk in your door, this can help promote a sense of community within the facility, which can be an attractive quality when people decide whether or not to join.
Benefits of Leasing Gym Equipment
Although ownership of equipment is nice, it might not the best option for you and your gym. Leasing the equipment gives you flexibility and options that can help you stay ahead of the competitors in your area.
Lower Upfront Cost. A lease for gym equipment normally requires a lower initial payment than a loan or than purchasing out of pocket all at once. While some lease agreements might require the first and last month’s payment right away, this cost is still lower than a down payment would be for a loan. This savings means your business will not be strapped for cash and you have more money to use for other needs.
More Frequent Updates. Due to the high cost of purchasing equipment, gym owners are likely to keep existing inventory for as long as possible, regardless of whether it might be out of date or continually in need of repair. Leasing, however, allows the flexibility to update more frequently because the term of the lease is normally shorter than the life of the equipment. Keeping your facility up to date is a great way to attract new business and keep your current members happy.
Tax Benefits. Depending on the type of lease you have, you may be able to receive benefits when filing your taxes. If you have an operating lease, your monthly payments might be eligible to be written off as an operating expense on your tax return. As an added, non-tax benefit, these monthly payments are normally lower and help preserve the cash flow for your business.
Capital leases, however, work a little differently. These leases are treated as a purchase, which means that you are eligible for ownership tax benefits. The main advantage to this is that the entire cost of the equipment can normally be written off as an operating expense in the year that it is purchased, rather than depreciated over the life of the lease.
Leasing also offers you the chance to make your monthly payments pre-tax. This means that, after deducting the monthly payment from your revenue, the taxable income of your business is lower and you will save money. As a very basic example (with fake numbers), let’s say your business takes in $10,000 per month, you are taxed at 35 percent, and your equipment lease payment is $1,000.
If you take 35 percent of $10,000, it means you pay $3,500 in taxes. However, if you deduct your $1,000 lease payment, the taxable amount decreases to $9,000. This brings your 35 percent tax to a total of $3,150. That is a savings of $350.
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Downfalls of Purchasing Equipment
While having ownership of your gym equipment provides benefits on your balance sheet, there are some negatives that may outweigh the positives. For starters, the initial purchase can take a huge bite out of your company’s cash reserve whether you purchase entirely out of pocket or need to make a large down payment on a loan. High monthly payments on purchasing loans can also put pressure on future cash flows of your business.
Additionally, any repairs or maintenance needed are entirely your responsibility. Not only does this take even more money out of your business, but there is the potential to inconvenience your customers while the equipment is unavailable. This is not always the case with a lease as many agreements provide for these services to be done by the lessor.
No one opens a business planning for it to fail, but it is important to put yourself in the best position to deal with any potential struggle. If you chose to purchase your equipment outright and your business closed after a short period of time, you would be stuck with the entirety of your inventory. If you could sell it, it would help you recoup some of the money you lost, but if you cannot find a buyer, you are stuck with it. Leasing, on the other hand, allows for the equipment to be returned to the lessor.
Downfalls of Leasing Equipment
The only real negative to leasing your gym equipment, rather than purchasing, is that you do not have full ownership and the benefits that go with it. Some lease agreements allow for equipment to be recognized as an asset (and corresponding liability) on the company’s balance sheet, but this does not mean you actually own the equipment.
Unless your lease provides an option to purchase the equipment for a reduced price at the end of the lease, you will have to return it to the lessor. This means you will be unable to sell it at any point, whether it would be to a new owner or simply to try to recoup some of the money you paid for it at the beginning.
We have covered the benefits and downfalls of buying versus leasing gym equipment, but the question still may not have been answered for your business. Let’s take a look at a few more things to think about when making your decision.
– What Type of Equipment Are You Considering?
Generally speaking, it is more common to purchase the type of items that are not a fad and do not require a lot of upkeep. Dumbbells, kettlebells, resistance bands, and stability balls are all examples of pieces of equipment that don’t need a lot of repairs and are probably not going out of style any time soon. They are also less expensive, in a relative sense than larger and more complex items.
Treadmills, ellipticals, bikes, and weight machines are all larger pieces of equipment with a lot of moving parts. They also take a high level of impact from gym users, whether it be from the nature of the activity or the volume of use they receive. Since these pieces are more expensive and have a higher risk of needing maintenance, it is more common to acquire them with a lease.
– How Old Is Your Business?
Newer, less established gyms might derive more benefit from leasing equipment rather than buying it out of pocket entirely or via a loan. According to the Small Business Association, 50 percent of businesses fail within the first five years of being open. That statistic doesn’t have to rain on your parade, but it is something to consider. It could be more beneficial to be safe rather than sorry, in this instance, because short lease terms give you the flexibility to adapt to the ebbs and flows of your business.
Businesses that are just starting out also normally have less money at their disposal, and putting up a large equipment payment can potentially cripple you from the start. Although leases typically require one or two months of payments at the beginning of a lease, monthly payments on leases are normally lower than those for loans. This not only means that your initial payment is lower, but also that your monthly equipment expense will be as well.
– How Much Money Do You Have Available?
This consideration may seem obvious, but it should not be overlooked. If you are already pushing your limits in regard to the funding you have available, putting a large amount down in order to own equipment is probably not the obvious choice. As previously discussed, you don’t want to put your business at a big disadvantage from the beginning, especially when there are other options available to you.
If you are fortunate enough to have enough money at your disposal, however, you may want to look past the leasing option and go for ownership instead. You would have the ability to customize items for your gym and have the potential for resale if you decide to sell at any point. There are also potential tax benefits to ownership, namely the ability to write off your purchase as an operating expense for the entire year in which it is purchased.
– What Is the Long-Term Vision of Your Business?
Your current equipment needs and your future equipment needs may differ. Before deciding whether to lease or purchase, consider what type of gym you are and where you see your business down the road. Are you a facility that serves a large number of members with a wide variety of equipment needs? Or, are you a gym that has a more narrow concept that will likely continue for many years.
If your business falls into the first category, leasing at least some of your equipment is probably a wise choice. Equipment and technology are continually being updated, and purchasing equipment does not allow you the flexibility to replace out of date items as quickly or as often as leasing down. If you have a large membership base, they will be looking to test out the latest and greatest equipment as it becomes available. If they can’t do that at your gym, they will find another.
Smaller gyms, particularly ones that would fall into the boutique category, could see more benefit from ownership. When a business’s focus is more narrow, there is generally less need for a variety of equipment. The next part of the decision is whether or not the equipment is durable. For example, a cycling studio is likely to use the same type of bike for a long time. Provided that the bikes are quality and can last a while, the studio might be better off to purchase the bikes and enjoy ownership benefits.
For boutique-style gyms, there is also the option to look for a lease that gives the lessee the choice to purchase the equipment when the lease is up. Especially for a start-up business, this is an attractive option because you do not have to put down as much money upfront; but after the lease is completed, you will have been in business long enough to see a profit and use it to take ownership of the equipment you’ve been using.
At the end of the day, the decision on whether to purchase or lease equipment can only be made by you. There are positives to be said for both sides of the debate, but you know your business better than anyone else and you will decide which option is best for it. Consider your present financial state, the vision for your business in the long-term, and type of equipment you need to help you reach a conclusion.
Whether you prefer the flexibility that goes along with a lease or the value that is added to your business from a purchase, you have options. Whichever method you choose, be sure that you are confident and informed about your decision. After that, all you need is to enjoy the success of your gym.
Frequently Asked Questions (FAQ)
– Does leasing my gym equipment mean that I own it?
No, when you enter into a lease, you are agreeing to pay a monthly fee to the owner of the equipment in exchange for its use over the life of the lease. There are certain types of leases, however, which may allow you to receive ownership benefits when it comes to tax purposes.
– If I own my gym equipment, am I responsible for repairs and maintenance?
Yes. As the owner, you are the sole caretaker of your equipment. While equipment companies may help you in the event of faulty or damaged items, repairs and maintenance are your responsibility.
– Do I have more flexibility with a lease or a purchase?
You will almost always have more flexibility with a leasing option because the length of the lease is usually shorter than the length of a loan you take out when purchasing.
Now that you are informed about your options when it comes to equipment, take time to get informed about how we can help you get the most out of your business with our business management software.