To Lease or Not to Lease? That is The Restaurant Startup Business Question
A startup restaurant business is a risky endeavor. The initial costs for equipment can be overwhelming, especially when you’re concerned about cash flow and are faced with months before you begin to see business revenue. Yet, big purchases must be made; a restaurant kitchen won’t go far without commercial grade appliances.
Cash Flow & Budgeting
Cash flow is a major concern for all business owners, but attempting to budget for a new startup can be a tricky task. Before you can serve that first meal you will need seed money to hold you over until opening day. That budget must include one-time costs like renovations, and capital assets like kitchen equipment. On top of these set-up costs you will also have monthly recurring costs to consider such as electricity and rent.
Research shows that initial calculations for a new business startup usually fall short when business owners fail to plan. Before you go any further consider this tool to estimate starting costs. Then once you have brought clarity to your budget it’s time to consider the vital equipment purchases you need to make. It’s important to consider your cash flow needs as you decide whether to buy your equipment outright or consider an equipment lease.
Leasing restaurant equipment is a simple way to take the sting out of large purchases and get your restaurant in business while preserving cash.
What Does Leasing Looking Like?
When you choose to lease equipment, you get the advantage of using it right away without paying the full cost upfront. Many restaurants lease their dishwashers, refrigerators, cooking equipment, ice machines, and even coffee makers to save on costs. In most cases, you only need to fill out a simple application and provide the money for an initial payment before the equipment is leased to you.
Advantages of Leasing
For many restaurant owners,especially a startup restaurant business, leasing equipment makes financial sense.
Keeps Your Capital Accessible: When money is tight, it’s smart to not tie it all up in one major purchase. Choosing to lease instead lets you spread your money out to get the biggest impact for your business. Cash flow is a concern for a new business so look for a lease which does not require paying a hefty initial down payment.
Lease to Own Opportunities: Many restaurant appliance companies have a lease to own program that allows you to own the equipment after the leasing period is up with a $1 buyout. You will own the equipment in full once the contract is completed, so long as you fulfill your monthly payments.
Tax Benefits: Leasing your restaurant equipment can be extremely beneficial, especially on non-tax capital lease such as a “$1 Buyout Lease”. In this case, you can take full advantage of the Section 179 deduction, while you are making smaller lease payments. Most often those payments will not come close to the amount of that tax deduction. So, you will get a greater tax deduction than the actual amount of money you paid out for the equipment lease in that year.
Because an operational lease qualifies as an expense, it is tax deductible under 179 IRS Tax Code. If you lease your equipment under as an operational lease, it’s possible to deduct the rental payments for as long as you continue to use the equipment.
Responsibility for Repairs: Commercial kitchen equipment undergoes tremendous wear and tear, making repairs necessary. Choose a restaurant equipment leasing company that offers full post sale support to assist you with the warranties and referrals for certified repair & service. Another consideration is to purchase an extended warranty that will secure repairs through the life of your lease.
Adjust to Your Needs: Is your business seasonal? Talk to a leasing company that can tailor fit a financing program for your company’s cash flow pattern. You want to work with a company that will help you to adjust payments to be lower in off-season or closed months and then adjust payments higher for those profitable seasonal months.
How to Know When Purchasing Is Better Instead
There are times when leasing restaurant equipment isn’t the best choice. Paying outright will save you money in the long run because you’ll avoid the acquiring interest on monthly payments. There are restaurant owners that find it to be an advantage to own their equipment right away, as the appliances are immediately viewed as a capital asset to their business. The business has more worth when the value of the equipment asset is shown on their balance sheet with no accompanying liability (debt). This is more desirable to potential investors. However, it is uncommon for a company, especially a startup restaurant business, to be cash heavy enough to invest in large equipment purchases. To consider this purchasing outright, the net present value of the equipment purchase would have to be greater than any other investment a company could make at that time.
In Summary: the Startup Restaurant Business and To Lease or Not to Lease?
Leasing restaurant equipment is an excellent option if you’re just starting out or have been in business for years. Cash flow management and tax benefits should be considered as you make the decision to purchase outright or to lease capital assets.
If you are a startup restaurant business and you are ready to start looking for restaurant equipment to buy or lease, Restaurant Appliance Depot offers quality equipment and lease-to-own financing for restaurant equipment, combined with helpful customer service and a five-tier approval system. Let Restaurant Appliance Depot walk you through the process of acquiring the best equipment for your business needs. To start taking your restaurant business to the next level, check out www.restaurantappliancedepot.com today!Pages: