May 2015 – Priority Leasing

Most gyms allocate an average of 60% of their floor space for strength and cardio equipment. Industry metrics can be helpful in determining the right balance of floor space to use for cardio and strength equipment and there are great tools available online to help you plan your gym space, but deciding on the right equipment for your gym can be a major endeavour and have a serious impact on your budget and operating expenses going forward. Commercial fitness facilities and corporations creating gyms for their employees can lease or buy the new equipment. Here are some helpful fitness industry benchmarks, tools and insights into leasing versus financing or buying, followed by some local resources.

Plan your Gym Space Carefully

According to Precor, 40% of the typical fitness facility is allocated to reception area, locker rooms, hallways and other non-exercise areas. Of the remaining sixty percent, 47% is allocated to strength equipment, 33% to cardio and 20% to group exercise space.

You can use the Cybex Gym Planner (link below) to create 2D and 3D plans for your space. This planner lets you visually create your space and then allocate the types of strength and cardio equipment such as Elliptical Cross Training Machines, Treadmills, Rowers, Stationary Bikes and Step Machines to scale on the floor space.

Determining which equipment you need is only part of the equation. The other question to ask is will you be better off in the long run paying cash, taking a loan or leasing the equipment? Going with a gut feel or doing things the way you always have may not be the best method. Perhaps consult a tax advisor to understand the best strategy before you finalize the purchase and avoid possible disappointment later, at tax time, or when you decide to upgrade the equipment.

To Lease or Buy Your Gym Equipment?

In addition to deciding on the types and quantities of equipment you’ll need for your gym, it’s a good idea to understand the pros and cons of leasing versus buying the equipment. Here are a few considerations to keep in mind and to discuss with your advisor.

1. Keeping your gym’s equipment modern and up-to-date

If you have operated any kind of gym or fitness facility you know it’s important to have modern, up-to-date equipment. Every few years, new machines are developed and become the latest craze in demand by gym members (stair climbers replaced by elliptical machines!). Cardio equipment manufacturers are continually improving their equipment lines, adding new computerized features, technologies, sensors and devices. If a competing gym offers more current fitness technology than you, it may be enough to send prospective members to your competition.

Usually it’s a good idea to match the lease term to the length of the equipment warranty, often three years. Why? Because it can only take a few short years to show ware and become visibly outdated. If you choose to upgrade your equipment on a regular basis, you may avoid repair costs that may otherwise not be covered under warranty.

Usually it’s a good idea to match the lease term to the length of the equipment warranty

The rate at which fitness equipment evolves can make keeping up painful. The balance between maintaining your gym’s competitive edge and a healthy balance sheet can be a worthwhile exercise!

2. Turning equipment over and dealing with the used asset

As we discussed in the previous point, eventually your gym’s equipment will become outdated or start to show it’s age. Leasing can take the pain out of updating equipment. This is largely because fitness equipment is a depreciating asset. If it appreciated, owning the equipment would make more sense because it would be worth more at the end of the loan or after you paid cash.

The flexibility to upgrade your fitness equipment on a regular basis without increasing costs or having to deal with obsolete equipment are some of the main reasons gyms utilize leasing to finance their equipment. At the end of the lease term, you can exercise your option to return the old equipment to the lessor, no questions asked, and / or order new equipment to be financed using a similar formula. You many also elect to buy it out at a predetermined value. In Canada, we write most of our gym equipment leases with a $10 lease end buy out but sometimes they can be written with a fair market value buyout or a buy out based on 10% of the original purchase price. At this point you are free to order new equipment, and your lease payments usually stay around the same. As long as you have made payments on time, your leasing company will be happy to provide you with a new lease.

In Canada, we write most of our gym equipment leases with a $10 lease end buy out

To sum up this point. When it’s time to upgrade … if you bought the equipment you will need to either sell it or dispose of it. If you leased the equipment, you have two options, you can return it to the leasing company, or buy it out at a low predetermined price.

3. Paying LESS taxes

When you lease equipment for your commercial or corporate gym, you’ll be able to write off 100% of the lease payments from your taxable corporate income. Compare this to buying the equipment, and only writing off the depreciation each year. This means referring to tax tables that list set depreciation rates on a yearly basis and then calculating the depreciation based on the remaining value from the previous year. Yes, it can get a little complex. The main takeaway is that leasing is a 100% write off, while buying or taking a loan is only a partial write off.

leasing is a 100% write off, while buying or taking a loan is only a partial write off.

For example, if you want to own your equipment and take a loan for equipment that depreciates by 25% per year, you get to write off 25% of your loan payments for that year. As mentioned, with leasing you can write off the entire payment.

If you choose to buy the asset (equipment) at the end of the lease, and then resell it, you add the sale amount back to the value of the equipment before you calculate the deprecation. For more information about writing off depreciation in Canada see the source links below or consult your tax advisor.

4. Keeping your access to credit open

When using leasing to finance your equipment, you can treat payments as an operating expense instead of a capital cost. As such, they do not appear as a liability which may support other requests you make for credit.

Popular Types of Cardio Equipment You Can Lease and Where To Get It

The types of equipment we lease the most include:

Elliptical Cross Training Machines
Treadmills
Rowers
Stationary Bikes
Step Machines

In Western Canada, popular places to order equipment for your commercial or corporate gym include:

In one of my next posts we’ll take a closer look at the financing of fitness equipment and different lease types, so stay tuned.

Sources referenced:

Cardio Equipment Leasing Strategies for Fitness Centers

http://www.athleticbusiness.com/budgeting/cardio-equipment-leasing-strategies-for-fitness-businesses.html

How to Choose Fitness Equipment for Your Gym

http://www.precor.com/en-us/blog/2015/04/22/how-to-choose- fitness-equipment-for-your-gym/

Writing off depreciation on equipment you purchase:

http://www.taxplanningguide.ca/tax-planning-guide/section-1-businesses/calculating-depreciation/

Starting a new clinic can require a significant investment in medical and therapeutic equipment, not to mention office furnishings and other supplies.

Medical and health related technology is constantly evolving, inevitably becoming more accurate, safer and effective.

In this new world, Canada’s public healthcare system and private health clinics are turning to leasing their equipment as a way of lowering overall costs, freeing up cash flow and more importantly, providing the most up to date patient care.

Over the years we have financed all types of equipment for health practitioners. In some cases it started out with one piece of equipment and as the medical professional began to understand the benefits of leasing, they came back to us to finance additional equipment and even their medical supplies.

We can even finance management software for physiotherapists chiropractors and laser therapy technicians.

One of the benefits they enjoy the most is that leasing allows them greater flexibility to keep their equipment up to date.

How does that work? Well, when the lease term is over, they simply acquire the latest model and maintain their lease payments at about the same level. So if, for instance, we finance laser therapy equipment for a medical clinic, after a three year lease the older laser technology may soon be out of date. If the clinic purchased the equipment with cash and they now want to buy more state-of-the-art equipment, they will have to find a buyer for the old equipment, trade it in or send it to the scrap heap. Either way, they have to deal with another large cash outlay which may put pressure on their time, cash flow and lines of credit.

When they lease their equipment, they can choose to buy it out, usually at a very low price, or return the equipment and replace it with a brand new state-of-the-art laser equipment. Typically, end of lease buyouts are 10% of the original purchase price.

Using the latest technology will not only make them more efficient, it will also help build the patient’s perception of their clinic as being more modern and preferable to competitive options. This perception also attracts highly skilled technicians who prefer state of the art equipment.

There is no limit to the types of equipment that medical and health practitioners can lease. The list can include:

Chiropractic Tables and Equipment
Physiotherapy Equipment
Laser Therapy Equipment
Therapeutic Massage tables
Dental Equipment
MRI Equipment
CT Scanners
X-ray Machines

On top of all that, the clinic writes off 100% of the lease payments, instead of calculating and writing off only the depreciation amount on the equipment at the end of every year. This is one of the main reasons we recommend clinics and practitioners should lease depreciating equipment and only pay cash for appreciating equipment.

Medical and health practitioners should lease depreciating equipment and only pay cash for appreciating equipment

Here is a list of 7 reasons why in most cases you’ll be better off leasing medical equipment rather than buying.

Your bank will require a 10 – 20% down-payment on a loan, while a Lease can be done with only one monthly payment in advance.
Leasing allows you to more easily upgrade your equipment, giving your patients access to the latest in technology which provides you with efficiencies and a competitive advantage.
Leasing improves your asset management and frees up capital for other expenditures.
You can plan for the future because your lease payments are fixed and won’t fluctuate with rising interest rates.
With leasing, you avoid obsolescence because you simply upgrade to the next model at the end of your lease.
Leasing provides flexible payment options and oftentimes no down payment is required. With leasing, you can secure one hundred percent financing, which means the hardware, software, training, maintenance, shipping and installation can all be included in your lease agreement. We’ll even finance 100% of your Medical Practice Management Software.
Leasing provides tax benefits as you may be able to write off 100% of your lease payments.

With benefits like these, it’s easy to understand why Canada’s healthcare system and especially private health clinics of all kinds are turning to leasing.

Given the rate that equipment technology is advancing, and becoming safer and more effective, leasing makes a lot of sense for your clinic if you believe it’s important to use the latest technology and maximize your cash flow.

If you are starting or currently operate a clinic contact us to determine if leasing make sense for your specific situation.

Source: http://www.taycor.com/news/ the-advantages-of-medical- equipment-leasing-over-loans/

Fitness Equipment, Should I Buy or Lease It?