How important is gear to you?

[Proformance]

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.

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

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.

 

[Proformance]

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

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.

 

[Scott Hanna]

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

 

[Proformance]

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?

"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.

 

[steve149]

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

 

[MIXMASTERMACHOM]

I'm sorry but I still say what I bought was an investment. Now weather I recoup the money I spent on this investment is another story. That would mean I need to work to see how to recoup the money spent. That would mean to set a business plan to get that done and what I'm finding out today so people don't beat me down for what I just said, is to not be afraid when quoting a price. Just quote the price and let it go. That also means stop giving out give away prices. Prices so cheap that I'm actually giving my services away basically.

 

[DJCC]

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.

 

[MIXMASTERMACHOM]

Like I said that's my take on it. Now you call it what you want. Either way what I learned was to look and see does it make sense from a business stand point to buy something. I know some things we buy are a necessity and other things are just what we want. We all do this at some point. That's what manufactuers sell on and that is emotion. They get you to think you've got to have the latest whatever. Look at those people who are losing their minds to own the gold Iphone 5. Standing in line for a long time to pay a lot of money to own that phone. I remember when the original Iphone first came out people losing their minds to own that phone. The original price was $500.00. To me that was crazy to spend that kind of money on a cell phone. I waited till that phone came down to $100.00 and then I bought it. I have the 4 that I paid $1.07 for as an upgrade. I'm just waiting till the price dramatically is reduced and then I'll get the Iphone 5. I could have gotten the original 5 that came out as an upgrade for $200.00. I'll be damn if I ever give anybody $200.00 for anybody's cell phone. Only way I could see me doing that is if I hit the power ball or something like that.

The point being they keep coming up with new stuff and some people think they have got to have it because it's the latest thing. When does someone get satisfied with what they got?

 

[SoftJock Rick]

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.

 

[Scott Hanna]

"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.

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.

 

[Proformance]

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.

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?

 

[Proformance]

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

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

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

 

[steve149]

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

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

These days I'm a tangential, straight-line tracking guy.


Sent from my iPad using Tapatalk

 

[Scott Hanna]

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?

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.

 

[Proformance]

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.

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.