You've got to go digital this year!

Michael Kidd of Rainbow Photo in Bellvue, WA, summed it up beautifully: "Digital is an absolute requirement for continued success in photo. If you don't like the numbers, (seriously) start a plan to exit the business on your terms."

This year's digital labs are better and cheaper than ever. There are several to choose from at the $100,000 level (for printer/processor; film processors not included.)

Input from digital camera customers is probably the smallest advantage. You'll suddenly find that one piece of equipment lets you make photo CDs, prints from slides, photo business cards, greeting cards and announcements, print-to-print, APS developing and printing. And results from all kinds of input look better, and paper/chemical waste will go way down. Possible downside? Your relationship with your wholesale lab will get weaker because you won't be sending nearly as much work their way.

Go to the PMA convention in Las Vegas. It's the only place you can really see all the equipment up close. You may want to contact your lab salesmen in advance and tell them you're serious about buying at PMA. Have your financing in hand, and be prepared to resist temptations.

Leasing deals will sound attractive - fight the temptation! One of the computer tools I've created is a calculator that computes the true cost of leasing. It's in my new PMA Business Resource Success Secrets of Minilabs and Specialty Camera Stores

You're better off purchasing with money you've arranged in advance. Interest rates are at a 30-year low. I just bought a digital lab with a 5 year note at 7% annual percentage rate. They would have been perfectly happy with 10% down, although I put more down. 

You will receive a substantial tax advantage by buying. Interest paid on any note for this equipment is fully deductible, and so is the depreciation. In general lab equipment is depreciated over a seven-year term, and up to $25,000 can be capitalized in the year of acquisition. In 2003 the amount that can be capitalized will probably increase to as much as $50,000 or $75,000, depending on whether the Democrats or Republicans get their way.

In addition, Bonus Depreciation applies to property purchased after September 10, 2001 and before September 11, 2004, which is placed in service by January 1, 2005. Bonus depreciation is 30% of the adjusted basis of the property (what's left after you take that capitalization mentioned in the above paragraph). This means that if you purchase $100,000 worth of hardware you can expense and depreciate a total of $47,500 in the first year. (As always, check with your accountant before making buying decisions based on my say-so).

The lease company sales force will offer many good reasons to lease. They will tell you that a lease doesn't tie up your capital, or affect your other credit lines. The underlying assumption is that credit managers are naive and won't take your lease obligation into account. In truth, leasing capital equipment is virtually identical to purchasing it on an installment loan basis - except it's harder to tell how much interest you're paying. It's almost impossible to terminate a lease for lab equipment early. Your obligation to the lease company will have nothing to do with obligations from the manufacturer of the equipment. If your lab is a lemon, or the manufacturer declares bankruptcy, you still have to keep paying the lease company!

Join a buying group before you buy that lab. The major buying groups have negotiated special terms that will save your initiation fees on this one purchase, and will save you so much on paper and other expenses you'll wonder how you ever got along before. More about groups