Gym equipment finance in NZ: What is your BEST option?
Are you setting up a gym and are wanting to finance the purchase of your equipment?
I delve into some of the nuts and bolts of the process and what the end result may look like for you.
If you aren’t buying a franchise gym, then chances are you are going to need to set your gym up from scratch. Including sourcing and purchasing your equipment.
Your equipment will be your biggest investment.
If you don’t have the capital to purchase the equipment cash (and even if you do, finance may be a better option), then you will likely need to finance the purchase.
There are a handful of finance companies in NZ that offer secured lending:
These three are the most common, however there are many more in the marketplace, with varying levels of interest rates.
I have calculated my workings based on setting up a gym with the average number of members found in a typical NZ fitness gym. Based on my research, there are approximately 1,200 gyms in NZ and 15% of the population maintain gym memberships.
That suggests an average of 750 members per gym.
To fit this gym out with leading, high-quality equipment from one of the country’s most well-known equipment retailers, I have budgeted for a spend of $200k.
Here is my equipment list along with pricing.
Equipment list, along with pricing for a new gym in NZ.
I have come in slightly under budget, but I will round up for the purposes of this exercise. Besides, that extra $18k will come in handy filling out missing items and various other bits and pieces that will be needed for the set up.
With finance, it’s important to consider whether it’s the right option for you.
If you have a few hundred thousand dollars in start up capital, and you are considering using this to purchase your equipment, it may be a better idea to use these funds as your working capital rather than tie it all up in the equipment.
For instance, it will be important to have a healthy amount of working capital in the business during your first year as you don’t know exactly what operating costs you are going to encounter, or their quantum.
Your working capital can be used to pay your staff, lease, marketing costs and the rest of your running costs while you focus on setting the gym up properly and getting members through the door.
Having a solid cash buffer of six months estimated operating costs will help you sleep at night. If you hire three staff; one admin, and two trainers, all three on $50k gross, to cover their wages each month, you’ll need $12.5k.
Including your own wage of $50k, that’s $16.7k/month. To cover wages for six months, that’s exactly $100k.
Alternatively, to meet these costs you can open an overdraft facility with a bank or take out a business loan, however this will need to be secured over your home or investment property or else you wont have much luck getting lending!
Ya ya ya, what’s the finance going to cost me, Ryan?
Most of the finance companies offer rates between 13 and 17%.
I will use the rate of 16% in my calculations, along with a term of 5 years – the max generally offered.
Keep in mind this is secured lending. It’s very unlikely you will obtain unsecured lending for a new $200k loan. If you don’t make the required payments, the lender can take possession of your equipment and sell it to repay your debt.
Here are the loan details.
Loan details for a loan taken out to purchase gym equipment in NZ.
As you can see, you’ll be paying back $4,863.61 per month.
Of this, it’s roughly an even split between your interest and principal repayments for the first eight months, and then it starts to become mainly principal.
In the first year, you’ll repay a total of $29,978 of interest. That’s a third of the interest cost. Because the interest is charged on the loan balance, you pay most of it upfront.
How does the loan impact your bottom line?
Assuming the gym will be on the higher end of the market as a boutique, competing with the likes of Les Mills on pricing, I have used a membership cost of $30 per week.
At this rate, you will need 19 members to cover the cost of interest for the first year.
To cover the total loan repayments for the first year, you’ll need 37 members.
Taking into consideration the previously mentioned wages and estimated additional operating costs of $50k for the first year, I estimate you will need 198 members in your first year. This includes total loan repayments, not just the interest.
Let’s compare this to forking out the cash
If you fork out the cash, you will want to earn a return that is at least greater than the 16% cost to finance the equipment.
So, assuming the $250k running costs of the gym, it will take 160 members to break even in the first year.
To earn at least a 17% return on the equipment, you will need an additional 21 members, for a total of 181.
So yes, if you fork out the cash, it will take less members, however you will struggle to find a source of cash that will allow you to cover the operating costs of the business, which this route requires.
(The pretzel was delicious and makes for a great cover photo for an article about gym equipment financing 😊)