If your boutique studio concept has a significant equipment need, you will likely consider equipment leasing as an option. Here’s how it typically works:
- You shop around and find the equipment you want
- You negotiate a price with the supplier
- You shop for a lessor (you may or may not choose to use the lessor recommended by the supplier)
- You negotiate terms with the lessor: term, interest rate, downpayment, lease-end options
- You pay a few months upfront, and monthly payments
- At lease end you return the equipment or buy from the lessor.
- After returning the equipment or buying and selling, you start the cycle over again with brand new equipment.
When do equipment leasing along this model, you are in effect ‘financing’ the equipment by paying over time instead of purchasing with cash up front. For much fitness equipment the useful life is only about 3 years, so 3 year leases are fairly common. In this model you have brand new equipment every 3 years. I consider a monthly lease payment as an ongoing operating cost of the business that allows you to have the best and latest for your visitors.
If you are willing to keep equipment more than 3 years, you can buy the (now-used) equipment at a significant discount, that is negotiated and known when you sign the lease. Here’s an interesting math summary from a cycling studio that wants new bikes every 3 years.
Scenario A (buy): Pay $50,000 up front for 25 bikes @ $2,000 apiece. After 3 years, sell bikes for $400 each ($10,000). Total net cost for 3 years: $40,000
Scenario B (lease): Pay $5,000 up front, pay $1,400 per month for 36 months. Total payments equal $55,000. Sell bikes for $400 apiece. Total net cost for 3 years: $45,000.
These are rough numbers that illustrate the total out of pocket cost. Obviously in scenario B, you pay more, but you have access to all that capital during the 3 years to make other investments in the business. In scenario A, all that cash is gone instantly. Most studios prefer equipment leasing for this reason….especially if the cash to buy the bikes had to be borrowed, or taken from an investment that was actively earning. There are other factors that may impact this decision based on which type of equipment and facility you have…this is one fairly typical example.