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For many small club operators, money is often in short supply. And that is especially true for those just setting up their businesses. The option to lease equipment—especially if it is really a financing option that allows for the purchase of the equipment at the end of the lease—is an attractive proposal for many.
The Wrights' Plan
That is how the Wrights' plan is set up. The couple did a finance deal that allows them to lease their equipment for three years and then buy it for a dollar at the end of the lease.
"At this point, we just want to pay it off and have that money in our pocket," Wright says. "It was a little over $2,000 [per month], and that's money that we won't have to worry about putting out. And we'll just switch out one piece here and one piece there as it needs it."
The Wrights' 5,000-square-foot facility offers memberships, one-on-one personal training, Zumba and boot camp classes for its approximately 200 members. The facility has about 25 to 30 pieces of equipment plus accessories, which they purchased.
Another plus to leasing for the Wrights was that the lease came with the option to return the equipment or redo the payments if they could not afford it, Wright says.
However, leasing may not be the right fit for everyone.
"We look at leasing at least once per year," says Erica Smith, facilities director for Gainesville Health and Fitness' three clubs and two physical therapy centers in Gainesville, FL. Smith gets bids from vendors each year to ensure that purchasing is still the best option for the company.
"Every time, it has been less expensive for us to buy in the long run," she says. "It doesn't make sense for everybody. For us, where we can put the money out front, it makes more sense [to buy]."
Because Gainesville can typically buy its equipment outright and usually purchases a large order at one time, the equipment is often cheaper than doing a finance deal, but that is not the biggest reason for purchasing rather than leasing, Smith says.
"One of the big things we consider over money is down time," Smith says. "We call it turnover days. From the moment that the machine is down until it is back up and running, how many member days have we lost?"
Gainesville does all maintenance in-house. Smith computes how much it would cost the company to wait for a service technician under a lease agreement rather than fix it in-house.
And because Gainesville maintains its own equipment, Smith often can negotiate better equipment purchase terms with manufacturers, including deleting the three-year labor warranty and extending the parts warranty from the typical three years to a more generous five years.
Smith has built a system to track the mileage, down time and repairs on each piece of equipment. She determines when it is time to replace equipment based on how much it costs the company to maintain it.
"Once it hits a certain point of being not cost-effective for us to keep it, that's when it triggers in the program that it is time to get rid of these pieces of equipment," Smith says.
This kind of tracking and maintenance system may be beyond the ability of some smaller clubs, just as purchasing more than one or two pieces of equipment at a time is beyond their ability.
Wright says that any future equipment orders of more than $20,000 will be leased again so that the ABC Wellness cash flow can go toward operational expenses and possible future expansion rather than toward equipment.
