When is it viable to buy gear?

[pauldub]

So, I have been thinking about a major purchase sometime next year, mainly because of how the interest rates are dropping and it will be very cheap to get a loan soon.

 

We have good credit and can afford a loan to purchase some high end professional equipment, the question is when do you see it being a viable purchase.

 

Im probably looking at 8-10 Mac 700s, with my calculations I believe that I have enough current work to pay it off in 2 years. Thats not taking into account any growth and new clients.

 

So when do you decided to make a purchase? Am I better off sub hiring until I have grown more? or is repayment over 2 years a sensible period?

 

Previously I have only purchased equipment if I could estimate it making its money back over 1 year, however I think it is a good opportunity to take advantage of the low interest rates.

 

Obviously I need to take into account maintenance as well,

[Sound In Gloucestershire]

one thing, is most of the work for the same client? What would happen if this client stopped using you, or just scaled down their operations?

[Ynot]

Maybe search this forum for topics dealing with kit purchase.

 

Is it really viable for you to own your own kit?

Will you be making money or getting more work as a result?

Can you get as much work using sub-hired kit from a supplier?

(Which is often much better as you can then select the right kit for the job rather than being restricted to what you have on your shelf).

[Stuart91]

If your work is mainly with one client, there is a chance that they might be thinking along the same lines: "Is it worth our while buying our own kit rather than paying for production so regularly?"

[6th Order]

I'm sure you'd research any loan very thoroughly, but I think it needs to be said that there is no direct link between interest rates and loan rates, for new loans.

 

Even given the political pressure for banks etc to reduce their rates, the reality is that they won't until they can get cheeper credit.

 

</OT>

[Pete McCrea]

I'd approach it another way. Do you want to become a kit owner/rental house, or do you want to focus on your core business. If you have kit, then it needs insured if your dry hiring it, it will need regular testing, you will need to relamp it, case it, prep it in and out, yada yada yada. If you think that's the way forward then I'd approach your accountant for the best way forward in your circumstances.

 

The other option is to go to the rental houses you currently use, and tell them you have X amount of work. if they have any sense they'll offer you better discounts, and do all they can to keep your work (that said it is a two way relationship - tell them what you need improving and want to see, but tell them when they do well to). This may enable you to increase your margins, but let someone else take the risk and costs involved with the kit. It also doesn't leave you with legacy kit that might start to become un-hireable in a few years time.

 

ETA the OP is Australian.

[pauldub]

Thanks for the reply guys,

 

firstly, there is no one client that stands out as the main source of work, they are all well spread in different areas. I also currently do allot of work with other small companies as their op/designer so this would be a way to increase business however I am not counting on this in my decision to purchase.

 

I already own a fair amount of equipment, just not much larger expensive stuff. The gear would not be used for dry hires, this is something that does not interest me and seems to be more hassle then its worth.

 

I agree that owning specific gear means that I need to sell this kit and not what might necessarily be needed. However the type of work that I mainly get is corporate and special events, so most of the time it does not matter what type of light is used.

 

For what I want to purchase and what the going rates are in this part of the world, it would take me 50 hires to pay off the equipment and I believe I will have 25 hires in one year not allowing for growth and new work.

 

Thats obviously not making the most of the equipment and most people probably would sub hire for this amount of work, however im thinking long term. I think the benefits would be greater once the equipment is paid off in 2 years time.

[Ynot]

For what I want to purchase and what the going rates are in this part of the world, it would take me 50 hires to pay off the equipment and I believe I will have 25 hires in one year not allowing for growth and new work.

But has that allowed for your maintenance and upkeep of the lanterns?

You will need to spend on them regularly - either your time or a sub-contracted engineer to service the kit, then replacing lamps etc. And do your purchase prices include the flight cases...?

[paulears]

There is something else that needs looking into. If you hire and then effectively re-sell the hire, with a mark up, all you make is the profit on the deal,and with it the tax liability. If you make this major purchase, then it's probable that for the next year, maybe two, you won't actually make a profit at all (on paper) as the expenditure in the tax year will be very high. If you're VAT registered, which you really should be if you are considering purchases on this level, then again input and output tax will balance out in your favour. The gamble comes from work to pay off the loan. If things go well, then using other peoples money for finance is the most common way because the 'system' works for you. Moving lights do have some residual value until they are either too old or just out of fashion, so you do have the option of selling them off if work dries up. If you hire in at this level, you can't invoice at higher than the hire companies general rate, so your profit is their discount. If you have small amounts of kit, the other chargeable items, other than the hire cost, are proportionally higher - so you + odds and ends can be a good income generator. As part of a big job with your new kit, they won't really be much more, meaning you need more revenue to make it worthwhile.

 

I you can find a lender with a competitive interest rate, are pretty sure the work is there - then it may be worth a risk. The hire in/hire out route is safe, but apart from the safety, doesn't offer such good returns. Service could be done in house, or via an agent - just needs costing in. If you do it yourself - then after the necessary training and spares have been sourced, you could generate extra income by servicing other peoples kit too, but perhaps that's a bit adventurous at the moment.

 

One thing - when the kit is not out, where will it live? 10 MAC 700s take up a fair amount of space, and if this also has to be paid for...............?

[Colin]

Another thing to vaguely think about, what other purchases could you make? Cable for example is comparitively expensive to hire but uses up a relavtivly small amount of space, keeps its value well and is very easy to maintain.

[Nicktaylor]

I think you aim of fifty hires seems high to me, though I guess you are talking one night stands or short jobs not full weeks. I have a friend who has a pro company and am sure he worked on the basis of 20 hires, IE 5% of value per hire. On that basis the kit is bought sooner, but still is a tax deduction for a number of years. Agree with all other comments re maintainance costs etc

[JazzAV]

I'm sure this isnt an issue for you but I have had a couple of freelancers suggest they might buy kit, a big basic they forget is you have to deliver it, I had one freelancer who hadnt thought it through and had to drive to a central london gig with the kit in his car and pay 2 days central london parking & 2 days congestion charge. Not sure what his longterm plan is for this.

[lightsource]

I'm sure this isnt an issue for you but I have had a couple of freelancers suggest they might buy kit, a big basic they forget is you have to deliver it, I had one freelancer who hadnt thought it through and had to drive to a central london gig with the kit in his car and pay 2 days central london parking & 2 days congestion charge. Not sure what his longterm plan is for this.

 

He doesn't live in the UK :D

 

Back to the OP....

 

As far as I can see, from what you've said, I think only you can honestly answer the question you've asked. If you're basing you're purchases on interest rates, etc, then that is a bad thing. You seem to suggest that you already have a customer base though?

 

You need to cost the products you're purchasing (whatever it is), add the servicing cost, then see when they'll be profitable. The Mac 700 is a sturdy workhorse and in demand at the moment, but you'll need the customers and service to make it pay. Work out the figures....If it's viable, then purchase them, if it's not then look at the problem, and work towards a solution, if that's possible. If not, then don't buy.

 

Edit.....Typo's

[pauldub]

Thanks guys, most of the problems are items I had thought through. Storage is no problem, transport means hiring a truck but I do this often for jobs anyway.

 

While interest rates are not the determining factor they are what prompted me to think about the whole idea seriously. I do have the customer base to support it, maybe not as large as I would like it at this point. I think right before christmas is a bad time to approach the banks, so im going to sit on it until the next year and then go from there.

 

I cant see any reason that would put me off from wanting to own lights. I already own a desk, I have room for storage, I don't mind the transport arrangements as I look after this when I dry hire anyway, the only extra I need to be mindful of is maintenance, and adding a bit to my insurance.

 

Luckily we don't have congestion tax in Sydney, and parking fees are not a problem if you factor them in the bill.

[stagemanagement]

If most of your work comes from designing and operating (and I'm assuming it's lighting B-) ), then a more considered purchase for you may be a desk?

 

I know a few reasonably "big league" guys and they've purchased their own desks to ensure continuity and ease of setup while continuing to dry-hire the lamps and infrastructure.

The upshot is that a gig may be anywhere and they only transport a desk, while the lamps can come form the nearest supplier with the kit they want.