How important is gear to you?

Jeff Romard said:

Well actually 2 of those speakers and an amp were on rental on an install for 2 years for $500 per month without the original investment I wouldn't have been able to do that. That install returned me about 4X the original investment not to mention they were paid for many times over before the install.

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That's not a DJ service - you essentially floated them a loan in the form of an equipment lease. What you really invested in was their establishment - not the the speakers. Had they gone bankrupt 2 months later you would not have been able to collect all of that rent.

The economic life of the speakers was over at the time you took them back (economic value $0) even though for your purpose they may have a longer useful life.

We use the term asset to describe things for accounting - but, not everything is truly an asset in the sense that it produces income. A carpenter's new hammer is an asset for accounting purpose - however, income is the result of the labor not the hammer.

Sure I could rent gear every weekend and avoid the investment in gear but it doesn't make financial sense. I buy gear for the long term. I will do about 50 bookings this year myself and another 25 through my other DJs. At $100 per rental (and that's being generous to myself) It would cost me $5000 to operate just this year alone not to mention what I wouldn't make of other DJs I have using my gear which to me makes it an investment not a sunk cost

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Two different issues here: first is just managing comparable expenses. You may believe buying gear is your better choice (and you may be right if you have solid bookings in place) but, you also may never have done an actual financial comparison. If you own $60k worth of gear, factor in the value of depreciation, useful life, cost of obsolescence, maintenance, and replacement - it may actually be on an accounting basis more expensive than the $5,000 rental estimate.

The second issue is the other DJs - if you are simply equipping them that that is more akin to a lease/rental just like you did for the bar. If they are employees, then the gear is still a sunk cost - it is their labor that produces net income for you. If you've mis-classified the workers, then there is a variable (but calculable) risk of back tax/employment insurance levy. So, to really compare the benefit of rental/lease vs ownership - you have to do a true present value calculation.

Scott Hanna said:

A corporation is renting a building for their HQ. They then decide to invest in a building and land of their own. They spend $1 million on land and building.

Since they are not renting any part of their building, the building produces no cash flow.

Are you suggesting that the million they spent is sunk cost......even though they could turn around and sell the building?

I do believe you are mistaken. I've always believed sunk cost is simply UNRECOVERABLE past investment. Usable necessary equipment does not fit into that category.

That 8 track player in the basement....I'll give you that.....sunk cost

There are many types of investments. Companies invest in new equipment all of the time

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Think before you argue just for the sake of a fight.

DJ Gear is not that kind of asset, nor is it infrastructure. A factory building and the widget machine inside function as similar assets. The land is something different (which is why so many companies own the building - but, lease the land.

Not arguing. Just stating that I don't believe you are using the term "sunk cost" correctly. At least not to the definition I believe that most use it. I could be wrong

A building, a tool, equipment, land, ...those are all assets. Yes they are different assets.

Most assets, as different as they are.....all have some value.

Can you point to something where someone else refers to any gear or equipment as sunk cost immediately? You stated earlier that all gear is sunk cost. Have you asked an accountant about that?

Btw...I do agree that a dj's equipment is not nearly as valuable as what the dj provides

Scott Hanna said:

Can you point to something where someone else refers to any gear or equipment as sunk cost immediately? You stated earlier that all gear is sunk cost. Have you asked an accountant about that?

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"Sunk cost" is not an accounting issue - it's for forecasting and planning.
For tax purposes - DJ gear is an "asset" that I buy, depreciate or expense - showing how it takes money to make money.
For business purposes - it is a sunk cost because the purchase will not create a booking or produce anything of value. It's a tooling expense - not an investment.
Employees are an investment because - productivity can be expressed as a rate of return for you on their wages.

Except for the rental/lease example above - there is no rate of return associated with buying gear to tool a DJ, and the value of the DJ bookings isn't in any way proportional to the money spent on gear.

It's important to know that because - as we just saw in a recent thread someone spent $500 on new gear to cover a $400 gig - with no other similar bookings on their calendar. Only a fool would see that as an "investment." It is a $500 expense. "Buy gear - and the business will come" is wishful thinking, not an investment. It would have been smarter to spend $200 on rented gear and use the remaining $200 to advertise your labor for future gigs.

The so called gear "investment" was a $100 loss - not buying any gear produced $200 in advertising. A sunk cost is money spent in a way that can not by itself move you forward.

Buying gear is a question of "when" to buy. Appropriately - you buy gear when the frequency of bookings that call for it is such that owning the gear produces more profit or productivity than renting it.

Mix, you are way over concerned about prices. You say the same thing in almost every post you make. Please stop, most of here know you have no clue about being a successful and profitable DJ.

My equipment is a non-consumable supply cost, not an investment.

The money my financial adviser spends to purchase stocks and bonds is an investment.

YMMV.

Sunk cost is a silly term, unless you are a sole prop.

I have a corp, and I can write off a quarter million per year. Which means I pay no taxes.

So, if you pay no taxes -- make a smiley face

There's no depreciation, no amortizing, and no sunk costs. It's very simple to exploit the loopholes.

Proformance said:

"Sunk cost" is not an accounting issue - it's for forecasting and planning.
For tax purposes - DJ gear is an "asset" that I buy, depreciate or expense - showing how it takes money to make money.
For business purposes - it is a sunk cost because the purchase will not create a booking or produce anything of value. It's a tooling expense - not an investment.
Employees are an investment because - productivity can be expressed as a rate of return for you on their wages.

Except for the rental/lease example above - there is no rate of return associated with buying gear to tool a DJ, and the value of the DJ bookings isn't in any way proportional to the money spent on gear.

It's important to know that because - as we just saw in a recent thread someone spent $500 on new gear to cover a $400 gig - with no other similar bookings on their calendar. Only a fool would see that as an "investment." It is a $500 expense. "Buy gear - and the business will come" is wishful thinking, not an investment. It would have been smarter to spend $200 on rented gear and use the remaining $200 to advertise your labor for future gigs.

The so called gear "investment" was a $100 loss - not buying any gear produced $200 in advertising. A sunk cost is money spent in a way that can not by itself move you forward.

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I agree that sometimes it makes sense to rent gear instead of buying it. I don't buy any gear until I know I will use it enough to make sense.

However, IMO, rental fee for equipment is a sunk cost. Still an investment. Purchased equipment that's needed to complete a job is not all sunk cost. Only the unrecoverable dollars.

As a DJ I need equipment to do my job. Either I own it, rent it, or it's provided by the venue/customer. I've found it to be a wise business decision to invest in my own equipment that I use often. I purposely buy gear that has good resale value. I love using gear for 4 years and then selling it for just a few hundred less than I paid for it. Makes for very little sunk cost.

Yes sunk cost should be used for planning. If your equipment is worthless and unusable, you better have a plan for needed equipment for a job. But if you're equipment is valuable and in great working order, your plans change.

Scott Hanna said:

I purposely buy gear that has good resale value. I love using gear for 4 years and then selling it for just a few hundred less than I paid for it. Makes for very little sunk cost.

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If you sell your gear years later - after you have already taken the expense or depreciated it - you have a tax liability owing to recover the depreciation. The reality of that resale is virtually null because in adjusted dollars you likely received a bigger economic gain by taking the tax deduction years prior - which you are now undoing.

It also begs another question: if you sell the gear and don't report the gain - how is that different from the bottom-feeder DJs described here and in other boards for supposedly not paying taxes?

steve149 said:

Now, if buying gear got one more "action", would it then be considered an investment? Bow-chicka-wow-wow

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Hmm... more like a rebate, I think.... and tax free.

Reminds me about that old debate: straight tone-arm versus bent?

Proformance said:

If you sell your gear years later - after you have already taken the expense or depreciated it - you have a tax liability owing to recover the depreciation. The reality of that resale is virtually null because in adjusted dollars you likely received a bigger economic gain by taking the tax deduction years prior - which you are now undoing.

It also begs another question: if you sell the gear and don't report the gain - how is that different from the bottom-feeder DJs described here and in other boards for supposedly not paying taxes?

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Or......you could do your taxes correctly and not take depreciations that don't exist because your equipment still has value.

In my opinion, if someone is better off depreciating gear than selling iti for what it's actually worth, it means they over paid for crappy gear.

If it's routinely better for companies to depreciate gear rather than selling it, you'd see very little market in used equipment. Yet it most industries, used equipment is a big market.

Scott Hanna said:

Or......you could do your taxes correctly and not take depreciations that don't exist because your equipment still has value.

In my opinion, if someone is better off depreciating gear than selling iti for what it's actually worth, it means they over paid for crappy gear.

If it's routinely better for companies to depreciate gear rather than selling it, you'd see very little market in used equipment. Yet it most industries, used equipment is a big market.

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Wow. That's so uniformed even I won't touch it.

Have you ever actually filed a tax return that claims business income?

The used equipment market is generally comprised of former lease inventory being liquidated. The depreciation accrues to the benefit of the lessee, who either surrenders the gear at term or purchases it for a nominal fee. Either way, the lessor claims no depreciation since they are simply earning income on an investment (loan). The lessee, if they take ownership and resell the gear - do so with an new cost basis, so your notion of "value" is way off the mark both in tax terms and real dollars.