As any fitness studio owner knows, buying gym equipment can get pretty expensive. And with so many other costs to factor in when you own and operate a studio, it’s necessary to look for areas where you can cut down on expenses. One option that can be a big help? Leasing the gym equipment you need in your facility.
But with any business transaction, there are a few guidelines you should be aware of before you sign on the dotted line. Here’s a helpful guide for leasing fitness equipment that will ensure you’re getting the most bang for your buck.
When to Lease
If you’re opening a new fitness studio, Noam Tamir, owner of TS Fitness says leasing equipment is the way to go. “With leasing a piece of fitness equipment you are paying interest rather than buying it outright,” he says. “If you want to have expensive pieces of equipment and keep your start up costs lower, leasing is the best option. It also helps you forecast expenses and net income.”
If you want to have expensive pieces of equipment and keep your start up costs lower, leasing is the best option.
As Mike Clancy, co-founder of FitLink, points out, leasing equipment can be beneficial beyond saving money upfront. “There is definitely a misconception with leasing,” he explains “Most people think you only lease fitness equipment if you are short on cash, that is not the case. Texas Instruments is a cash-rich company — they lease their fitness equipment, they never purchase it.”
So, when and why should you lease gym equipment? “The main reason to lease is first to conserve your working capital,” Clancy says. “It’s easier to make a monthly payment rather than budgeting for a large capital purchase every few years.” Also, leasing can provide tax benefits, as well as a lower monthly payment. “If you choose a tax lease, you will have lower monthly payments and you may have the ability to write off your monthly lease payments for the term of the lease,” he explains.
What to Lease
What type of equipment makes the most sense to rent? “Strength equipment will always be more cost effective,” says Tamir. “The maintenance on them is lower since they are more durable, so the breakdown less. Treadmills and other cardio equipment need frequent maintenance.”
As Clancy points out, leasing equipment also allows fitness studio owners to stay up-to-date on the latest trends. “Short term leases of 2-4 years allow you to change equipment to keep up with industry trends and innovations in technology,” he explains. “A refresh every few years will help keep consumers engaged.”
Types of Leases
Just like leasing a car, fitness equipment leases vary by length of time. “Usually it’s a 3, 4 or 5 year lease,” says Tamir. “People often match the lease with the warranty. The benefits of the shorter leases is that the equipment is worth more in the end. There are normally two types of lease ending agreements. One is a $1 buy out where you pay $1 to purchase the equipment. The other is a 20% balloon of fair market value. This basically costs you less during the payments but a bigger final payment at fair market value of the equipment.”
If your plan is to turn your equipment in at the end of your lease rather than leasing to own, Clancy suggests going with a Tax/FMV lease. “I would recommend that your cardio equipment be leased for 36 – 48 months on a Tax/FMV lease,” he explains. “Strength equipment has no electrical components and has a longer life. I would recommend you choose a capital/$1 buy out lease with a longer term such as 48-60 months.”
How to Lease
Tamir, who leases his equipment from Gym Source, recommends doing your research to make sure the place you’re leasing from is reputable within the industry. “You are looking for people that have a good reputation,” he says. “Usually you want to deal with a bank if you have good credit but you can with a broker if you can’t get a bank to work with you. You just pay a higher interest rate.”
Also, go over the paperwork with a fine-tooth comb. “Make sure you know what type of purchase option will be written so there are no surprises at the end of the term,” Clancy recommends. “Some companies may sell your lease to another company; therefore, be sure you have the proper contact information for your leasing company.” Be aware of additional fees as well. “At minimum, expect to pay two monthly payments and a documentation fee when signing the lease documents,” he says.