Opening a New Restaurant: Should You Buy or Lease Restaurant Equipment?
As you draw a business plan for your restaurant, you may be faced with a lot of questions that may affect the success of your operations. Prior to announcing the ground opening of your restaurant, you will have many decisions to make; leasing vs buying restaurant equipment is one of them. Although you may feel that you should own your restaurant equipment, furniture, and appliances, leasing from them may be your only option for the time being.
Costs of Buying vs Leasing
Taking a big plunge into jump starting your restaurant business is a big investment in your money and time. Aside for the need to have in-depth knowledge of the food industry and possess culinary skills, you should be business savvy to make responsible financial decisions in addition to creating a budget on how much you can afford to spend and on what. Buying restaurant equipment may not be on your budget, especially if you are not earning as much as you anticipate. The cost of leasing restaurant equipment may save you money but puts a lot of responsibility on your shoulders which can be stressful. Each has its advantages and disadvantages. Either way, you will take different steps for each process in finding the equipment you need. Only then will you be able to determine whether it’s worth it to buy or lease.
Logistics of Purchasing Restaurant Equipment
When outfitting a new restaurant dining room, or kitchen for that matter, it’s always important to remember to choose restaurant furniture and appliances that are not only in top notch quality but resistant to the wears and tears for long periods of time in the food industry. The cost of replacement or repairs can be very expensive. Making purchases on restaurant equipment depends on whether you need that equipment at the moment – if you even decide to purchase altogether. However, purchasing restaurant booths is not the same as purchasing cookware, utensils, or appliances as:
They are not the same
Terms of warranty vary
Difference in purchases is known as capital equipment, which is expensive restaurant equipment owners need to purchase. There are different ways to obtain all this equipment and it is crucial for restaurateurs to learn the best way of making purchases for expensive and inexpensive items. If you purchase hardware for your restaurant tables, for instance, you will inevitably having to repair or replace it once it deteriorates. The advantage of purchasing inexpensive restaurant equipment is not only that is lasts longer but it is easy to buy as it is to replace. Maintenance errors are more common with capital equipment and paying for replacements can be very expensive. Purchasing capital equipment, especially with a bank loan, can be tough considering the interest you are required to pay as rates can vary on the items you purchase. The interest rate is the percentage of the amount in which you are loaning from the bank. The interest rate for purchasing restaurant chairs via bank loans is presumably higher than the rate for buying dinnerware. If you take out loans to purchase capital equipment, the interest fee can increase your debt. You will sink deeper into debt if you unable to pay off your loans and have to replace these equipment at the same time.
The Benefits of Leasing Restaurant Equipment vs Buying
For some restaurateurs, restaurant equipment leasing has many benefits. If you recently started your own business, a restaurant rental equipment rental company will provide you with unlimited access to the items you need. They charge a monthly fee which most restaurateurs. You are not necessarily required to have a good credit score to lease from these companies which is advantageous owners who are starting off. Plus you save money which you can use to make purchases in the future.
Sometimes, leased equipment is tax deductible. Depending on how the IRS categorizes your rental agreement on the items you wish to use, your lease payments are considered to be a business operating expense which can be accounted for. You automatically pay taxes on items you buy but if you are leasing, you pay taxes on a monthly basis which could help negate the overall cost of the equipment itself. However, you may not be able to claim tax deduction for depreciation of leased items.
What it’s Worth in the Long Run
Before you opt for leasing equipment, you need to find a reputable supplier which may require some research. How old are the items? Are warranties included? Have there been repairs made? What are the conditions for leasing equipment? What contractual obligations does the supplier have? A lease normally costs you less upfront so you get set up your dining and kitchen area almost immediately without causing a dent in your budget. Many rental companies allow you to exchange equipment for different models if stipulated in the contract.
Leasing can also cost you more than buying over long term. Interests and additional fees, including early termination fees (if you decide to end your lease before the term is up) are tacked on to the monthly payment. Leasing doesn’t cover all costs. Just because you can lay down a monthly payment on the items you want doesn’t mean they are all available for lease. There is no opportunity to build equity when leasing equipment. If you decide to buy a When your lease agreement expires which it eventually will, you must return the equipment. If you want to continue renting from them or use new equipment, you need to renew your lease.