A warning about equipment leasing

As part of our conversion, we decided to add some equipment, such as a tanning booth, some cardio, and some Body Masters freeweight equipment. For the first time ever, we chose to lease rather than purchase. We opted to use our on hand cash for our marketing efforts instead of using it to buy equipment. On the plus side, leasing allows you to keep more of your money for other purposes such as this. In addition, from a tax standpoint, equipment lease payments can be expensed immediately. If you purchase your equipment, you will likely be required to depreciate it over its useful life, leaving you with less of an expense to apply against revenue.

On the negative side, you will never own the equipment, so you will be faced with either purchasing it at the end of the lease, or turning it back in towards a new equipment lease. If your club gets the kind of usage we all hope for, your cardio equipment will probably be at the end of its life within 3-5 years anyways, and replacing it makes sense. Strength equipment lasts much longer, maybe 5-7 years. (It will actually last much longer, but advances in technology make it somewhat obsolete by that time).

Here's a unique instance that occurred with us that I would like to warn you about. We are leasing equipment from 4 different vendors. One of the vendors is Body Masters, and we have ordered two pieces from them. Back when we first entered into the lease, we were required to make our first payment immediately, and to set up the lease to automatically pull money from our checking account for monthly payments. So in effect, the lease began instantly, even though we had not received the equipment. The reason for this is that vendors typically are not willing to ship product until they have money in hand.

Normally, this would not be a problem, and for 3 of the 4 vendors we purchased equipment from, it wasn't - since we received their products within 2-3 weeks. Not so with Body Masters. It has been over 6 weeks and we still have not received our equipment from them. Apparently they had a problem at their factory. Unfortunately, we have now made two lease payments and we're coming up on payment #3 - and still no equipment from Body Masters. Had I have known it would take this long, I would have cancelled the order and ordered from Life Fitness or Cybex. We're told we are now within a week or so of receiving the equipment - finally!

The lesson you can learn from this (and a mistake that I won't make again) is to nail down the details of delivery from all of your equipment companies. Work with the vendor and the leasing company and make sure that you will not be required to pay for equipment that you do not receive within a reasonable time, say 3 weeks. At the point I'm at, the lease company is collecting the lease payments from me regularly, as though I've received everything, but I guarantee that they haven't released the funds to Body Masters - which means that I'm making payments on money that I haven't used yet. The lease company is the beneficiary of this problem, even though technically, it's Body Masters fault. Make sure to work out issues such as this in advance - and make sure you deal with vendors that are customer oriented ... I would take Body Masters off that list.