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Capital Choices: Buying vs. Leasing Restaurant Equipment


One of the greatest financial barriers to restaurant ownership is the procurement of necessary and costly equipment. From refrigeration units and dining fixtures to cooking appliances and  POS systems, facing these huge upfront expenses can be a daunting experience for  prospective restaurateurs. After tapping into life-savings, borrowed funds,  and personal assets, it can leave very little in the budget for other essentials like staffing, rent, and marketing.


One potential solution  to this dilemma is to lease  equipment for your restaurant. 



Leasing vs. Buying Factors to Consider 

Whether you are starting a restaurant or looking to grow your business, deciding whether to lease or buy restaurant equipment depends on several factors, including one’s financial situation, long-term goals, and specific needs. Here are some factors to consider:


  • Upfront Costs: Leasing generally requires lower upfront costs than purchasing. If you have limited capital or prefer to preserve cash flow, leasing might be a more favorable option.

  • Cash Flow: Leasing allows you to spread the cost of equipment over time, which can help with budgeting and cash flow management, whereas buying equipment means no ongoing lease payments once the equipment is paid off.

  • Ownership: When you buy equipment, you own it outright, giving you more flexibility. It also adds to your asset value, making your business more attractive if you sell your business. When you lease,  you don't own the equipment and must return it at the end of the lease term.

  • Maintenance and Repairs: Depending on your lease agreement, maintenance and repairs may be included in the leasing terms, reducing your responsibilities and expenses. When you buy equipment, you're responsible for all maintenance and repair costs. Related post: Checking it Twice: Preventative Maintenance for Restaurants 

  • Technology and Upgrades: Leasing allows you to upgrade to newer equipment more easily when your lease term ends, keeping your restaurant up-to-date with the latest technology. When you buy equipment, you'll need to invest in new equipment when an upgrade becomes necessary.

  • Tax Implications: The tax treatment of leasing versus buying may vary depending on your location and specific circumstances. Leasing payments are typically considered operating expenses and may be fully deductible, while depreciation deductions may be available for purchased equipment.

  • Long-Term Plans: Consider your long-term plans for your restaurant. If you anticipate significant growth or changes in your operations, buying equipment might be a better long-term investment. However, if you're unsure about your future needs, leasing offers more flexibility.


Although leasing restaurant equipment is a popular option for many owners, it is not a perfect solution for every situation. In the long run, leasing can be far more expensive than purchasing equipment outright, making these options only suitable for certain situations.


With this in mind, here are some questions to ask yourself when deciding whether to buy or lease equipment.


How Will the Purchase Affect My Bottom Line? 

While laying out the large majority of assets it takes to purchase equipment, leasing equipment can be less profitable in the long run. The monthly or quarterly payments involved in a lease agreement will almost always come to more than the cost of purchasing equipment outright. That being said, for restaurant owners who are still establishing themselves in the market, these added costs may be worth it to preserve cash-on-hand.  


How Will the Purchases Affect Other Areas of Your Business?

If equipment purchases will compromise the quality of food you serve, customer service you provide, or your ability to attract new customers,  then leasing could be a viable option. Restaurants depend on their reputation and a business’s reputation relies on attracting and keeping customers. Compromises to your ability to keep customers happy  should be avoided, even if that means reduced short-term profitability.


How Long Will the Equipment Last?

When you lease a piece of equipment,  you are essentially paying every time that you use it. Whereas  purchases involve the same expense regardless of whether you derive value from the item for five months or five years. 


Therefore the longevity of the equipment in question should be considered when making a decision whether to lease or purchase. Some equipment such as dining furniture, ovens and stoves can last for decades, representing  a low risk investment.  


On the other hand, items like tech-dependent POS systems will likely need to be updated more frequently.  


It's also not just wear and tear that can render certain items obsolete. Growth can do this, too. If you have refrigerators and freezers  that restrict the amount of food you can store and serve,  you do not want to be stuck with these items when you outgrow their capacity.  

Therefore projections for growth should also be considered when choosing whether to lease or buy certain types of equipment.



What Role Will the Equipment Play in Your Business? 

When making a decision to lease or buy, you should consider the risk.  Purchasing may seem like  a riskier proposition than leasing, however, if   a certain piece of equipment plays a key role in everything you do, to the point that you could not operate without it, then purchasing poses much lower risk. 


 A pizza shop, for example, may benefit from buying a pizza oven because the cost of the machine could eventually pay for itself. If you own a seafood restaurant and want to dabble in specialty coffee, on the other hand, purchasing an expensive espresso machine might be risky, making leasing a safer option. 


Leasing also allows you to test the waters on  either increasing the capacity that your restaurant can operate or expanding the types of food and drinks that you serve.


If you own a cafe and you're thinking about selling sushi, for example, leasing a customized refrigeration system allows you to experiment and see  if there is a market for this menu addition. If the experiment fails, you won’t be saddled with an expensive piece of unused equipment. On the other hand, if the experiment is a success, you can renegotiate your lease or purchase the item outright.



What are Your Ultimate Goals? 

While no option is a magic solution for every situation, both leasing and buying have their place depending on your end goals. . 


If you are opening  a restaurant with the end goal of selling, you will want to consider purchasing the majority of your equipment. When an owner is focussing on increasing their customer base and expanding their capacity, leasing can be an amazing tool in making this happen.  


Though leasing provides greater flexibility, purchasing your equipment means that you are increasing the asset value of your restaurant. When combined with decreased operating costs, this asset value  will make your restaurant far more attractive to potential buyers.



Buying Used Equipment

Before purchasing or leasing brand new appliances or simply ditching  your existing equipment, consider buying used restaurant equipment. 


Buying used restaurant equipment can be a cost-effective solution, especially for startup businesses or those on a tight budget. Whether you are procuring equipment for a new restaurant, renovating your current restaurant, or looking to expand,  buying used restaurant equipment can offer both advantages and disadvantages. Here are some pros and cons to consider:


Pros:

  1. Cost Savings: One of the primary advantages of buying used restaurant equipment is cost savings. Used equipment is normally priced lower than new equipment, allowing you to purchase necessary items at a fraction of the cost.

  2. Availability: Used equipment is often readily available for purchase, allowing you to quickly acquire essential items without waiting for manufacturing or delivery lead times associated with new equipment.

  3. Ability to Negotiate: Since used equipment sellers may be eager to move inventory, there's often more room for negotiation on price and terms compared to purchasing new equipment.

  4. Reduced Depreciation: Used equipment has already undergone its initial depreciation, meaning  it will experience slower depreciation rates compared to buying new equipment.   

  5. Eco-friendly: Buying used equipment supports recycling and reduces the demand for new manufacturing, contributing to environmental sustainability. Instead of used, perfectly usable equipment, ending up in landfills, purchasing used equipment is a great way to contribute to a healthier planet. 


Cons:

  1. Limited Warranty and Support: Used equipment may not come with a warranty, or the warranty may be limited. Additionally, support and service options may also be limited.

  2. Unknown History: When purchasing used equipment, you may not have a complete understanding of its maintenance history, usage patterns, or any potential issues it may have, which could lead to unexpected repairs or maintenance costs. Therefore,  it's crucial to carefully evaluate the condition of the equipment and consider the potential risks before making a purchase.

  3. Limited Lifespan: Used equipment may exhibit signs of wear and tear, reducing its lifespan or performance compared to new equipment.  

  4. Compatibility Issues: If you're buying multiple pieces of used equipment, compatibility between different items may be a concern. Ensuring that used equipment integrates seamlessly with your existing setup is key. 

  5. Limited Selection: While there may be a wide range of used equipment available, the selection may be limited compared to new equipment options.  



Where to Find Used Restaurant Equipment

If you’re thinking about buying used restaurant equipment, start by making a list of everything you’re looking for. Once you know what you want, determine how and where you want to look for your restaurant equipment. 


Here are a few sources to consider:


Facebook Marketplace: This global social media app can be a great source for buying used restaurant equipment.  


Local apps like  Craigslist or OfferUp are excellent sources for used equipment that can usually be picked up in your local community.


ABC Restaurant Supplies: Purveyor of equipment, supplies, and old-fashioned customer service for over 30 Years, Miami’s ABC Restaurant Supply offers everything from reach-in refrigerators and freezers, prep tables, and commercial-grade cooking equipment to refrigerated display cases, appliances, and smallwares.


Gillette Equipment in Massachusetts has a plethora of used restaurant equipment on their website, including a Bargain Corner where they list their best used equipment deals.  


Central Restaurant Products is a great website for finding  scratch and dent deals. These are brand new products that were returned because they were damaged during shipping.  





Industry News!

The 2024 National Restaurant Association's Chicago show, the foodservice industry’s premier annual event, runs from  May 18 - 21, 2024 at McCormick Place.


Each year, the NRA show features innovative exhibitors, networking opportunities, and up-to-the-minute products and connections restauranteurs need to grow and thrive. 


Representatives from Sauce will be on hand on the floor to answer any questions about Commission-Free Pickup & Delivery Network for Restaurants.

For a full list of 2024 Restaurant Industry Conferences, Trade Shows, and Expos, check out our related post.


Check out our post featuring details about speakers, schedules, events, and exhibits at the 2024 National Restaurant Association Chicago show in Chicago, Illinois.



Take Away

Ultimately, there is no one-size-fits-all solution to whether you should  buy new, used, or leased restaurant equipment. Considerations like selection, availability, and compatibility must be factored in against your budgetary restrictions,  long term goals, and needs to determine which capital decision is right for your business.  



By Eileen Strauss

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