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Entries in leases (2)


Upgrading Your Health Club’s Equipment? Consider Creative Lease Financing

This is an associate feature post, sponsored by Iron Grip.

What are the main reasons members stay loyal to a health club? Friendly and knowledgeable staff; trainers and instructors who keep members feeling welcome and engaged; a convenient location; a clean, well-maintained environment that feels like a relaxing refuge from the hustle of daily life.

Of course you’ve got these things covered on daily basis.

But did you know that one of the top drivers of member loyalty is new, high quality fitness equipment—and plenty of it?

Continue reading "Upgrading Your Health Club’s Equipment? Consider Creative Lease Financing."

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What Equipment Should You Finance for Purchase and What is Better Leasing?

Joan Carter discusses what equipment to finance or lease in this week's Best Practices

Q: "What equipment should you look to finance for purchase and what equipment would be better leasing?" 

A: The decision on whether or not to lease or buy depends on a number of factors related both to the capital structure of the business as well as the type of equipment needed. Leasing equipment can be a good option for business owners who have limited capital.  Although leasing usually costs more in the long run, leases are usually easier to obtain and have better flexibility than loans, along with the added advantage of having less affect on cash flow.   

The primary advantage of purchasing is that you have ownership of it.  However, for some business owners, purchasing equipment may not be an option because the initial cash outlay is too high. Even if you plan to borrow the money and make monthly payments, most banks require a down payment of at least 20% which also ties up lines of credit.

As a general matter, the best equipment to lease is that which must be upgraded every few years, while purchasing equipment can be a better option for equipment that has a long usable life.  Most clubs upgrade cardio equipment every three years, primarily because cardio is the most heavily used equipment in the gym. So things like treadmills, bikes and Arc Trainers are often good candidates for leasing.  You are free to lease new, higher-end equipment after your lease expires. 

Strength equipment

Tax deductible. Lease payments can usually be deducted as business expenses on your tax return, reducing the net cost of your lease.

Tax incentives.  Section 179 of the Internal Revenue Code allows you to fully deduct the cost of some newly purchased assets in the first year. In 2010, you can deduct up to $250,000 of equipment (subject to a phase-out if you placed more than $800,000 of equipment in service in any one year). For example, if you are in the 25% tax bracket and you purchase $100,000 in business equipment this year, the net cost to you is only $75,000.

Possibility of depreciation deduction. Although not all equipment purchases are eligible for Section 179 treatment, you can still receive tax savings for almost any business equipment through depreciation deductions. (Some assets that don't qualify for the Section 179 deduction are real estate, inventory bought for resale, and property bought from a close relative.)

Should You Buy or Lease?

When deciding whether to buy or lease a particular piece of business equipment, try to figure out the approximate net cost of that asset. Be sure to factor in tax breaks and resale value when making this calculation. After determining which option is more cost-effective, consider other intangibles such as the possibility that the product will become obsolete (if you are considering purchasing) or that your need for the product will expire before the lease does (if you are considering leasing).

Joan Carter, Vice Chairman
CYBEX International
Founder of the CYBEX Pink Ribbon Run



This post is a part of our weekly Best Practices series. We post a new question and answer every Monday morning. If you have a question you'd like our Industry Leaders to answer, submit your question today.