Increased flexibility and efficiency of movement: two bi-products of good programming and qualities that most coaches hope to bestow upon their athletes.
But as an affiliate owner, applying these concepts to the business-side of your gym can be equally important – for you and for the experience of your members. The prudent use of financing can help you reach your goals faster while allowing you to maintain cash for unforeseen circumstances.
A Closer Look at the Advantages of Financing
As a funding solution for small businesses, financing offers a number of significant benefits to gym owners. In fact, 80% of businesses in the U.S. lease some or all of their equipment and lease financing accounts for roughly one third of new equipment purchases across all industries. At a minimum, it is a concept that every business owner should understand.
1. Conserve Working Capital for Day-to-Day Expenses – Typically, a lease offers 100% financing for the cost of the equipment (including costs related to shipping, delivery, and/or installation) with no down payment requirement. Particularly for an early stage business, the ability to conserve cash to cover operating and other business expenses is hugely valuable. Additionally, you retain the option to deploy your capital elsewhere or to take advantage of future business opportunities that may not be present today. There’s also a lot to be said for having some additional cushion in the bank account when problems arise – having cash on hand can mean the difference between weathering the storm and closing up shop for good.
2.Maintain Ownership of YOUR Business – In raising capital to undergo an expansion or start a new facility, it’s common to see gym owners give up a percentage of their ownership in the business to investors in exchange for funding. This is often viewed as a ‘cheaper’ source of money, since you are not necessarily required to pay interest on the invested capital. Of course, this doesn’t mean you aren’t paying for it elsewhere – particularly in the form of forgone future earnings of the businesses. Giving up ownership means giving up a share of the profits, and that can add up quick.
3. Improve the Quality of Your Facility and the Service You Provide – Ever-increasing competition in the marketplace may require you to invest more in the appearance of your facility, the quality of your equipment, and/or the amenities you offer (yes, showers!). We agree whole-heartedly that quality coaching and programming are the precursors for success in this industry, but someone walking into a box for the first time probably doesn’t appreciate that nuance like you and I. Don’t lose potential members over something that could be easily fixed – to demonstrate why you’re the best in the area, you have to get them in the door first.
4. Predict and Manage Cash Flow Efficiently – It can take months or years to save enough excess capital complete a significant renovation project at your facility. Instead, convert large up-front capital investments into a manageable stream of payments over time by utilizing financing. Lock-in a fixed payment schedule that allows you to get the equipment you need or complete improvements to your space now. This also allows you to use your new equipment and facilities to increase membership and generate revenue while you pay for it.
5. Limit Your Tax Liability, Legally – In the U.S., a finance lease allows the you to recognize an ownership position in the leased equipment for tax purposes – allowing you to deduct depreciation (a non-cash expense) as well as implied interest (a component of the schedule lease payment) for tax purposes. The result is that you shield more of your income from taxes and lower the amount of money you send to Uncle Sam. A finance lease also allows the lessee to take advantage of the Section 179 Deduction, in which a business can deduct the full purchase price of equipment for tax purposes and significantly lower the effective cost of the equipment. Some businesses may be surprised to find that the lease payments made the first year will actually be less than the tax benefit created through the Section 179 Deduction.
But be Careful – As with Anything, Financing is Not without Risk
Generally speaking, it is beneficial to work with someone who understands your industry and particular market, regardless of the service you are seeking. However, when that service involves providing capital for your business, selecting the right financial partner carries even greater importance. Spend time evaluating your options to find a partner that understands your vision and can offer guidance and transparency throughout the financing process. Despite the many benefits that financing can offer, reckless borrowing and/or egregious funding terms can quickly erase them.
Guest Post by Clay Ferrer | Rigquipment Finance
Clay Ferrer is the founder of Rigquipment Finance, an independent commercial finance company dedicated to providing flexible funding solutions for affiliate gyms and boutique fitness facilities. Clay is also a member of the coaching staff at Ballston CrossFit in Arlington, Virginia, where he has witnessed the growth of an incredible community and seen countless examples of peoples’ lives changing for the better as a result of CrossFit. This experience laid the foundation for Rigquipment Finance and Clay’s desire to help strengthen and expand the CrossFit community by leveraging his professional background. Prior to making the entrepreneurial jump, Clay graduated from the University of Virginia’s McIntire School of Commerce and spent five years working at an investment bank focused on advising specialty lending businesses and middle market financial services companies.