Making the next step in the PA biz... Let's hear your thoughts

Re: Making the next step in the PA biz... Let's hear your thoughts

Just remember that if you're renting the big rig, you can walk away when business lags. While you are "losing" some of the profits to the guy who owns the gear, you are also avoiding most of the upfront expense and all of the long term storage costs. If you've got a local company that takes good care of their gear and is decent to work with I'd say it's a no-brainer.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Scott Helmke said:
Just remember that if you're renting the big rig, you can walk away when business lags. While you are "losing" some of the profits to the guy who owns the gear, you are also avoiding most of the upfront expense and all of the long term storage costs. If you've got a local company that takes good care of their gear and is decent to work with I'd say it's a no-brainer.
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+1

I completely agree.

Don't buy a single piece of equipment that you don't absolutely need. And by need, I mean that you can't subrent, business to business, at a reasonable cost, with the ability to mark it up and make money on it.

If the cost of subrenting is MORE than you can charge for it, then it may make sense to buy. The cost of subrenting would include expenses like time and labor to pickup and return, availability issues on specific dates, quality control issues, etc.

But if you buy, you need to have the entire cost of ownership on the table - yearly maintenance expenses, repair costs, business property taxes, insurance, storage, transport, labor, cases, bags, cables, motors, lifts, maintenance on your motors and lifts, rigging hardware, etc etc etc. It is amazing how much it costs to own even a mid-sized PA system, and all the bits you need with it. If you aren't averaging a gig a week with that system, all year long, just rent it.

Where we are in VA it makes sense to own a bunch of stuff, though we still subrent fairly regularly. But if I still lived in Baltimore, with some access to "good guy" rates from the numerous PA companies in MD/DC/NOVA area, I would think very very hard before buying ANYTHING more than what you have.

Ha. There's some advice. Now I should take it :)

Jason
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Ivan Beaver said:
Ah-young grasshopper-you have started to grow up.

You can take the following advise for what you will-but please do consider it.

SNIP!

I never thought I would ever get out of the PA rental-but am glad I did. Don't get me wrong-I still enjoy a gig every now and then (you never get it out of your blood)-but not every weekend and holiday.
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Bravo Ivan. I just copied your entire post and saved it to my PC as something to refer too later. So much wisdom in that post.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Congratulations on your success Evan! Lots of good advice in this thread, especially from Tim and Ivan. I will add my .02 worth. There are a couple of things that stand out to me. First, there is a pretty good tax advantage to your gear purchases if you are in a situation with a lot of exposed income and you have excess funds that you would just put in the bank and save (read pay lots of taxes on). I am going to add more to this in a minute.

I am going to vote for the VT4888 for your situation for several reasons. 1) you can scale up as you go and not have the pressure of not having enough rig for the gig due to the rental availability in your area. Buy a few boxes and get in, make some money and buy a few more boxes as you go or as you need a tax write off. 2) As you mentioned, there is a ROI potential for dry rentals. 3) It will handle the larger gigs you are doing. You have a nice trap rig for the smaller ones. On a perfect day both will be out making money. Start cloning yourself. 4) This is a very big one: If you decide for some reason that owning a big rig is not for you, there is a decent resale value if you got in at a good price. 5) You like it.

I am going to add that I do not see ANY advantage of being the only person in town with this or that rig. I have been in this business off and on for 30+ years and have never seen a job won or lost based ONLY on a specific brand rig. Many clients won't know or even care what brand you have but all will know if it sounded good or bad and they will remember the name of the person or company who did the job. I don't see any rider issues with a VT4888 either.

Now a little more about the tax thing. I am going to assume you do this first and foremost because you love it. I am also going to assume you really want a nice line array and would rather have that (at this time) than a nice sportscar or boat or whatever. From a straight business bottom line it still might be better to continue renting (please consider Tim's buisness plan either way) but if you factor in the tax write off, personal ownership enjoyment, and the fact that this cool toy will actually make you some money instead of just costing you some, things start to look a little bit different. Consider when you need the write off and also how much additional revenue this purchase is going to generate.

Situation 1: You made lots of money this year and have a bunch left. Buy the rig and write it all off. It just cost you 35% or so less than you payed for it because you would have payed that portion out in income tax. Take a check each time you rent it out from now on.

Situation 2: Finance it over several years. Depreciate it over the life of the loan. Hopefully it makes enough revenue to cover the note and with any luck some extra so you can take a check. If it does not you at least have a tax write off for the money you had to kick in. Depending on what tax bracket you are in for the year it actually cost you that percentage less for the rig. Do better the next year and at least get to say,"Boy that was fun giving my Vertec a workout" every time you take it out.

Situation 3: Do a combination of 1 and 2 depending upon when you need the write offs.

Situation 4: Decide that it will only go out a few times this year and continue to rent until you build up enough clients to justify buying it.

Anyway, good luck with whatever you decide. Keep us posted.
-Eric
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Scott Helmke said:
Just remember that if you're renting the big rig, you can walk away when business lags. While you are "losing" some of the profits to the guy who owns the gear, you are also avoiding most of the upfront expense and all of the long term storage costs. If you've got a local company that takes good care of their gear and is decent to work with I'd say it's a no-brainer.
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Very good point.

Added the flexibility of renting exactly the system the gig needs.

This year I worked at FOH for a 5k people speech reinforcement (plus some choir and organ). The rental company is specialized on video, so they didn't have a big PA system. To make things more difficult we had a very small time frame to get the gig up and running. We decided to rent a d&b T system "up in the air", calculated, delivered, rigged. The cost was moderate and the PA in very good shape. We just provided nearfills, outfills and subs. Should we need a VDOSC for the next gig, we just call another provider. That's easy, especially on the business side.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Eric, that's interesting. Sorry to stray off topic a bit, but I'd like to know if it's possible to write off an investment in one go in the US. Here we have to write investments off over a certain time, for instance, if the time set for a piece of electronic equipment is 5 years, we can write off 20% of the investment every year for 5 years. This is no real tax advantage over renting (where every single Euro/Dollar can be deducted). Same goes for financing vs. leasing.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Yes, capital equipment purchases can be "expensed" rather than depreciated.... up to a certain amount, and some kinds of equipment does not qualify. Software does not qualify, either.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

What Tim said. The last time I had a really big single year capital equipment expense write off I believe the limit was $100k. It has varied during the years and I have not checked lately but I believe it is still at least $100k. Also the last time I did it with a major purchase the IRS was pretty flexible with how long or short you wanted to run the depreciation schedule. I believe the general term of depreciation was "over the life of the asset" but you are determining that lifespan. I always set it to the life of the loan so I expensed it at the rate I was paying out. What matters is in which tax year or years you want to take the depreciation. Obviously you get to expense any repairs and maintenance.
 
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Re: Making the next step in the PA biz... Let's hear your thoughts

Eric Cagle said:
What Tim said. The last time I had a really big single year capital equipment expense write off I believe the limit was $100k. It has varied during the years and I have not checked lately but I believe it is still at least $100k. Also the last time I did it with a major purchase the IRS was pretty flexible with how long or short you wanted to run the depreciation schedule. I believe the general term of depreciation was "over the life of the asset" but you are determining that lifespan. I always set it to the life of the loan so I expensed it at the rate I was paying out. What matters is in which tax year or years you want to take the depreciation. Obviously you get to expense any repairs and maintenance.
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The gotcha here is that if you've depreciated the system 100% then in the year that you decide to sell it you'll have to pay out taxes on 100% of the income from the sale.
if you only write off the actual depreciation of the system then it makes everything smoother when you go to sell.

Jason
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Jason Lavoie said:
The gotcha here is that if you've depreciated the system 100% then in the year that you decide to sell it you'll have to pay out taxes on 100% of the income from the sale.
if you only write off the actual depreciation of the system then it makes everything smoother when you go to sell.

Jason
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YEAH! When I got out of the rental business I sold off my system. I paid off all my credit cards-leases-loans etc.

I felt good about FINALLY being out of debt. But when I did my taxes-I owed something like 28-29K in TAXES! So BACK IN DEBT I went. :( Just to pay the taxes.

Yeah-the business side of things REALLY SUCKS! That is why I try to stay away from the business side of things-and just stick to the engineering side of things.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Jason Lavoie said:
The gotcha here is that if you've depreciated the system 100% then in the year that you decide to sell it you'll have to pay out taxes on 100% of the income from the sale.
if you only write off the actual depreciation of the system then it makes everything smoother when you go to sell.

Jason
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Yes and sort of. There are some legal tax moves you can do. I am going to check with my accountant on a few of them because the laws and loop holes change from year to year and I don't want to give any wrong information. One that I am pretty sure of is that you can trade for other equipment or towards the purchase of other equipment and you are only taxed on the difference between the trade and the cost of the new gear. If it is at zero on the books then any amount you sell it for is considered income but here again you can take a capital expense if you purchase new equipment with that money and it is less than the maximum limit for the tax year.

The other thing is when you do sell it you have the money to pay the taxes on it right then. The rest you get to keep. I would suggest you do it then or figure the amount you are going to owe on that transaction and put the money in a bank account that you don't touch until tax time or you could be in for a surprise like Ivan mentioned.
 
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Re: Making the next step in the PA biz... Let's hear your thoughts

Christian Tepfer said:
Eric, that's interesting. Sorry to stray off topic a bit, but I'd like to know if it's possible to write off an investment in one go in the US. Here we have to write investments off over a certain time, for instance, if the time set for a piece of electronic equipment is 5 years, we can write off 20% of the investment every year for 5 years.
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We have similar laws here.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Christian Tepfer said:
Eric, that's interesting. Sorry to stray off topic a bit, but I'd like to know if it's possible to write off an investment in one go in the US. Here we have to write investments off over a certain time, for instance, if the time set for a piece of electronic equipment is 5 years, we can write off 20% of the investment every year for 5 years. This is no real tax advantage over renting (where every single Euro/Dollar can be deducted). Same goes for financing vs. leasing.
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I believe it's Section 179 in the IRS. Do a google search.
 
Bill Forbes said:
I believe it's Section 179 in the IRS. Do a google search.
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Wow, how generous. I would buy much more gear with such depreciation rules. But over here we have one of the most complex tax laws. So complex that tax officials fail to answer some rather easy questions because if they are wrong somehow it will get them im trouble.

Anyway, the basic decision buying vs. renting stays the same.

Gesendet von meinem HTC Vision mit Tapatalk 2
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Just remember that the next level is more than just a flashy line array or a sleek new digital console.

It's FICA, it's Health Insurance for your employees, it's new and improved liability insurance coverage (2M Minimum), it's a nice new Workers Compensation insurance policy and don't forget you'll want commercial auto insurance as well to cover all those trucks you'll be renting. Than it's a DOT number and all the compliance that comes with that...What about sales tax on all those dry rentals? The list goes on...

Good Luck!
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Will Lane said:
Just remember that the next level is more than just a flashy line array or a sleek new digital console.

It's FICA, it's Health Insurance for your employees, it's new and improved liability insurance coverage (2M Minimum), it's a nice new Workers Compensation insurance policy and don't forget you'll want commercial auto insurance as well to cover all those trucks you'll be renting. Than it's a DOT number and all the compliance that comes with that...What about sales tax on all those dry rentals? The list goes on...

Good Luck!
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You mean stuff like a REAL BUSINESS? NAH-that is no fun-what about some new shiny speakers-that is more interesting.

But you are correct. And if he ever needs to get a loan-the band is going to want to see that he is acting like a real business-and not a hobby.

Growing up is hard sometimes.
 
Re: Making the next step in the PA biz... Let's hear your thoughts

Well guys, I think I've changed my mind again. :lol:

After this past weekend, some light was shed on what I think I really need to do. I feel like owning a ton of matching small to mid-sized boxes is the way to go. This event over the weekend had 8 stages of music. I needed 1 big system, and 7 smaller systems. If I owned enough matching boxes, I could have provided for every single stage myself, without having to rent in. The buy in cost is lower, and I can make my money back a lot quicker this way I feel. I'll also have the ability to send out multiple shows at a time, instead of only have 1 big rig to send out every so often. So, figure a dozen mid sized trap boxes(SLS960's), a dozen or so sub(HS118's), and a dozen or so self powered boxes(PRX612m). Plus some small consoles, and maybe a few other misc boxes, and I think I'll have a pretty profitable set up. Plus, I can still rent in a bigger rig on the larger shows, while still using my stuff to cover any other stages at these gigs.


Thoughts?



Evan
 
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