Having great restaurant equipment is a critical part of operating a successful restaurant business. But it’s also a huge expense. So how do you decide whether it’s best to lease or buy your restaurant equipment and what are some of the things to consider? Here are some of the pros and cons for both buying your equipment, versus leasing the equipment.
1. Pros of Buying
You own the equipment so once it’s paid for, there are no additional purchasing costs. In addition, it’s an asset to your business and is reflected as such on your financial statements. Since new appliances come with warranty, some repairs may be covered at no cost to the restaurant.
2. Cons of Buying
If it breaks down, you have to repair or replace it at your own cost. If there’s downtime for your business because of an equipment breakdown, it adds to the cost of repair and reflects badly on your business if you’re unable to provide certain foods or operate your business. However, you incur the purchase cost upfront and if you have to finance the purchase, there’s interest on top of the cost of the equipment.
3. Pros of Leasing
No large cash outlay upfront to buy the equipment so you save money for other expenses such as payroll or food supplies. You may be able to claim the lease costs as a business expense on your taxes since they are an operational expense. Check with your accountant to be sure.
Some types of equipment are better to lease because the investment to buy them is outweighed by their short life expectancy. Ice machines, coffee makers, dishwashers and even table linens and uniforms are examples of this. Leasing these types of items is easier in the long run, because the company simply provides a replacement in the event of breakdown.
In addition, repairs are usually included in the cost. It’s easy to upgrade to new equipment without incurring huge expenses.
Also, you may be able to do a “rent-to-own” setup where you own the equipment at the end of the lease.
4. Cons of Leasing
Most notably, you don’t own the equipment. Furthermore, you pay a monthly fee for the lease of the equipment but can’t reflect the asset in your financial statements. Over the long term, the cost of leasing the equipment can exceed the cost of purchasing it. Interest on leased equipment is often higher than interest rates for buying the equipment.
How long is the lease for? What happens if you need to change your equipment because of growth in your business? Are there penalties levied if you want to end the agreement early? As you can see, there are pros and cons to both scenarios. The best way to decide what’s best for your restaurant is to build a business plan that looks at each one. Only when you see the real numbers in black and white will you be able to determine what’s the most effective way to start or grow your restaurant.