» Canadian Forum


Purchasing Equipment W


What’s the best way to pay? BY MAHYAR K. HANSOTIA


hether you’re opening a new gym or upgrading a niche fitness studio, buy- ing or replacing equipment


usually requires a considerable upfront investment. Because few businesses have


enough savings to purchase equip- ment outright, how you choose to fi- nance your purchases is often the business owner’s most pressing con- sideration. There is a range of financ- ing options to choose from and each has pros and cons. It is important to do your research to understand how the repayment terms of each op- tion would impact your cash flow and help you meet your business’ growth goals. Your business


“It’s important to get numerous quotes,


understand why one company


and to ensure you are comparing apples to apples.”


may be cheaper than another,


plan and operat- ing budget will give you an idea of your monthly rev- enue (cash flow in) based on your in- come stream (from memberships, class passes, etc.). After accounting for overhead, such as rent and labour, you will know how much cash is


left over to pay for a loan or lease for equipment. Ultimately, your goal is to ensure that your cash outflow is less than your calculated cash inflow. Which financing option will help


manage your cash flow best, and what are the benefits and drawbacks of each? Here are some tips to help get you started.


Vendor financing The natural place to start is with the company selling the equipment. Does


46 Fitness Business Canada September/October 2017


it have a financing plan? What are the terms and are they competitive? Understand how the agreement is structured; often the equipment itself is used as collateral, but the company may also require a personal guarantee or impose a blanket lien.


PROS: Fixed term amount helps keep cash flow steady. You own the equipment once the loan is paid. CONS: Higher interest rates. Requires a strong credit score.


Bank loan You’ll use the solid numbers of your business plan for this option. Depending on the size of the business, you may qualify for a small business loan. Larger or more established own- ers may qualify based on their income and cash flow. Either way, you’ll need to make sure you have a good credit history. For some small business loans there may be a longer lead time for get- ting approved.


PROS: Lower interest rates CONS: May need a downpayment or to provide personal guarantees.


Equipment leasing Another financing option is via third-party companies that provide equipment leasing and allow you to essentially rent-to-own. These com- panies buy the equipment for you and then lease it to you for a specific term. At the end of the term you may be able to purchase the equipment for a small price or to replace or up- grade to new machines under a re- newed lease. Be sure to consider the term length


and interest rate. Typically the leasing company owns the equipment during the term, so consider the conditions they will place on the equipment and how these may affect your business. At


the end of the lease, can you buy the equipment and for how much?


PROS: No down payment. Relatively easy to obtain. CONS: Usually higher long- term costs. Difficult to break the lease unless you purchase the equipment.


Interest rates can be quite high, and


while some leasing companies may not reveal the actual rate it is fairly easy to work it out: add up all the pay- ments you would make over the term plus the end-of-term purchase price, and then subtract this from the cost of the equipment if you were to buy it now. The difference is the approximate dollar amount you would pay over the lease term. You can then calculate the approximate annual interest rate, or ask a professional to help with this. Depending on the size of the loan


and the capital that you are contrib- uting, you may have little or no nego- tiating power with a lender or leasing company. It’s important to get nu- merous quotes, understand why one company may be cheaper than an- other, and to ensure you are compar- ing apples to apples. A business loan broker can help recommend the right lender. Additionally, depending on the fi-


nancing option you choose and how it is structured, there are various tax advantages to consider. Speak to your accountant or tax professional to de- termine which option is best for your circumstances and to help ensure you follow the appropriate accounting and tax rules. FBC


Mahyar K. Hansotia is president of Sobel and Company, which provides financial acumen and strategic business expertise to owners of small, mid-size companies and large corporations. Contact him at www.sobelandco.com.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48