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
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