Page 123 - BCM June 2024

ACCOUNTING

Covering the Cost of Equipment

Buying, leasing and renting are options available to operators.

hould a bowling center buy, lease or rent its equip- counting for leases more di cult, especially when trying
S ment, vehicles or facility? e answer depends on to spell out the di erence between tax and book income.
the operation’s situation. ere also are the new rules Although the federal income tax treatment of leases isn’t
governing the accounting treatment of leases that must be impacted by ASC 842, the same can’t be said for state-
considered. based franchise taxes, sales and use taxes and net worth
Leasing might be a good option for a taxes, all of which might be impacted.
bowling center with limited capital that Regardless of the path eventually chosen, funding will
needs equipment that must be replaced or be needed for both purchases and leasing. Fortunately,
upgraded every few years. Leasing usu- there are a number of options, including:
ally means equipment such as pinsetting • Traditional bank loans, di cult and expensive today
MARK E. machines can be upgraded when the lease but more accessible and a ordable with an SBA guaran-
BATTERSBY term is up, with disposal fees avoided and tee.
a savings on maintenance costs during the • Alternative lenders — including specialty lenders,
lease term. equipment dealers and distributors — as well as online
Buying means the bowling center purchases and owns lenders. Often more readily available… but usually more
the buildings, equipment and vehicles outright. If funds costly.
are tight, there are nancing tools available including • Utilizing a line of credit that every bowling center
lease/buy plans and other o erings from dealers and should already have in place.
distributors. ere also is bank nancing with or without • Using a business credit card — quick but quite expen-
SBA guarantees helping overcome the reluctance of many sive.
potential lenders. Answering the question of whether it is less expensive
Renting and leasing work pretty much the same way, to lease or to buy depends on several factors, such as the
except with renting the operation signs a contract for a cost of the equipment or other property, the length of
shorter time (usually a year or less) and will not be re- time it will be used and the nancial health of the bowling
sponsible for maintenance costs. While renting does not center.
o er the option of purchasing the equipment at the end of Both loans and leases enable a bowling center to im-
the rental term, it almost always requires the equipment’s mediately access equipment and other property, making
return. it possible for those assets to generate revenue while the
Renting equipment is less expensive than leasing operation makes small periodic payments.
because there is no large down payment required. Plus, Leasing may be more a ordable in the short term be-
rental payments often are considered a tax-deductible op- cause of lower monthly payments.
erating expense, greatly simplifying accounting. e same Buying can be more cost-e ective in the long run as the
might not be true with leases due to a recent change in operation will own the equipment outright after making
the accounting rules and its impact on a bowling center’s all payments.
taxes. Renting, on the other hand, is best for a bowling center
Because of a change in the accounting rules, both that needs certain types of equipment for a short time or
private and non-pro t companies are now required to is uncertain about its future use — especially for one-time
report leases (and subleases) on their balance sheets. use or seasonal contracts.
Before ASC 842, operating leases were not included on an A loan to purchase the equipment or property might be
operation’s balance sheet, with the result that potential better if the operation has the funds for a down payment
investors and lenders didn’t have a clear picture of the and hopes to keep the equipment for a long time. A lease
operation’s liabilities. is better if the operation doesn’t have su cient funds to
e new lease accounting standard requires a business put down, the equipment is needed only for a speci c
to include all leases longer than 12 months on their bal- project or if there is a risk of it becoming outdated.
ance sheets as assets and liabilities, greatly increasing the Choosing whether to rent, buy or lease equipment or
visibility of leasing costs and arrangements. property requires careful evaluation of many facts and
ASC 842 does not really change how leases are treated circumstances. Professional advice to help answer the
for federal income tax purposes, but it does make ac- question might be advisable.

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