How do I judge whether a gym’s equipment is leased or owned outright?
Ask for purchase invoices, lease or financing contracts and a schedule listing every major machine, then check serial numbers against them. Anything with a lender’s or lessor’s name on it is not simply the seller’s to sell. Your lawyer can search for claims against it.
Start with a schedule from the seller listing every major machine, with brand, serial number, purchase date and how it was acquired. Then ask for the paperwork behind it: invoices showing a straight purchase, and lease or loan agreements for everything else. Walk the floor and match the serial numbers on the machines to the schedule rather than trusting it blindly.
Look at the payments. Monthly equipment payments in the books point to leases or financing. Ask for the contract terms: what remains owing, whether the lessor can take the equipment back and what happens on a sale. Some arrangements require the lessor’s consent to transfer, and some end with a purchase option you may or may not want to exercise.
Finally, ask your lawyer to check whether anyone else has registered a claim against the equipment. A lender may have security over it that the seller forgets to mention. Make sure the purchase agreement lists what is owned outright, what is leased and who takes on each obligation. Your accountant can explain how the payments affect the studio’s cash flow, and whether they should be reflected in the price discussion.
Key takeaways
- Match serial numbers on the floor to the seller’s equipment schedule.
- Read each lease or loan for what remains owing and whether transfer needs consent.
- Ask your lawyer to check for registered claims against the equipment.
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Due diligence
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentEquipment purchase financing for entrepreneurs
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
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