leasing


Leasing acts as life support for many


clubs, says Kay Glover. Have you considered your options?


T


imes are tough and banks are more reluctant than ever to lend to the leisure industry. To survive, our businesses have had


to become fitter and leaner than ever before. Many of us have already trimmed away the fat, focused on our core objectives and identified what we need to do to be profitable – so how do we go about obtaining the financial support we need to put our plans into practice? Obtaining funding generally depends


on two things: fi rstly, the nature of your organisation – are you an established business, a start-up or a public sector operator? And secondly, the purpose of the funding required


– is it for ‘hard’ equipment or for so- called ‘soft costs’ such as training?


financing equipment Installing new equipment can be an excellent way of refreshing a site, attracting and retaining clients and staying ahead of the competition. However, we’ve been through a tough few years where obtaining funding even for equipment became extremely difficult, with funding sources leaving the market. But the landscape has evolved and new resources have emerged: equipment financing is once again open to most organisations that can demonstrate that they are, or have the potential to be, profitable and viable. Phil Morris of LDF (formerly Lease


Direct) outlines the options available to operators. “Outright purchasing is great if you have cash available, but


52


operators should think twice before investing their precious cash resources into equipment that might be better fi nanced over its useful life. Expending your cash resources on equipment that will only ever depreciate can leave an organisation vulnerable to cashfl ow problems later, especially in an uncertain economic climate. There’s also little point in investing your cash into equipment if you will then struggle with cashfl ow or fi nancing soft costs later. “Many see bank loans as a good option


for funding a new or expanding leisure business, but they’re not necessarily the best solution for funding equipment. Banks may vary their interest rates during the loan period and may require security over your assets. “Also, using the bank to fund all your


equipment acquisitions can leave you with huge exposure to one organisation


– it handles your day-to-day cashfl ow and you may need to secure additional working capital facilities from time to time. In addition, should there be a change in the bank’s attitude to your type of business or if your relationship manager changes, having all your eggs in one basket can cause major problems.”


the value of leasing Morris continues: “Lease or hire purchase have always been popular solutions and are becoming increasingly so for many leisure businesses for several reasons. The basic principle is that the operator chooses the equipment, and the fi nance company buys it and charges you monthly


Read Health Club Management online at healthclubmanagement.co.uk/digital


payments over its prime useful life, with the equipment itself acting as the main security against the fi nance. Agreements are designed as far as possible to suit your cashfl ow, with monthly or quarterly payments fi xed for the life of the agreement – excepting VAT rate changes of course – and there can be signifi cant tax benefi ts for private sector customers. “Any value of equipment, from £1,000


upwards, can be leased over periods between three and fi ve years for the private sector and up to seven years for the public sector. At the end of most lease agreements and all hire purchase agreements, ownership of the equipment can be transferred to you. “Many think leasing is expensive when


compared with other funding options, but this is just not true. Leasing rates can be very competitive and, combined with the tax benefi ts, the true cost may be less than traditional bank facilities. “Another myth is that leasing is only


for companies that can’t afford the cash. Actually, the reality is the exact opposite. Companies that lease often do so because they know there are better uses for their cash that allow them to maximise profi ts or to avoid cashfl ow pressures during uncertain business times.” Jeff Davis, senior VP of commercial


sales for Power Plate UK, agrees that leasing is an excellent way for clubs to fund equipment. “You get to spread the cost,” he says. “Leasing has no impact on your existing bank or credit lines and rentals are fi xed, so you’re not subject to infl ation or interest rate hikes.”


january 2011 © cybertrek 2011


BALANCING THE BUDGET


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