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Running a successful restaurant requires making smart investments, especially when it comes to equipment. One of the biggest decisions restaurant owners face is whether to lease or buy their equipment. Here's what you need to know to make the best decision for your business.
Buying vs. Leasing Equipment
Imagine putting down $50,000 for a complete set of kitchen equipment. Much like owning a home, you're building equity in your business with every piece of equipment you own. The ownership advantage comes with some interesting tax benefits too. Consult with your professional tax advisor and find out if you can depreciate the equipment over time which could potentially lead to significant tax savings.
Keep in mind, if you ever decide to sell your restaurant, owning equipment adds to your business's overall value making it a more attractive offer for your buyers! While this sounds like an attractive option, that's a big chunk of capital that won't be available for marketing, hiring, or handling unexpected expenses.
Picture this as you weigh your options: rather than the $50,000 upfront payment to own, you're looking at monthly payments of $1,200-$1,500 to lease. Rates could vary depending on the brand, product model, and leasing service you partner with. Now suddenly, your immediate out-of-pocket expenses have drastically shrunk and now offer a bit of breathing room for those chaotic first months in operation. You now have available capital to distribute towards other areas of your business such as staff, marketing, & inventory! However, you also want to consider other fees that could play a factor in your decision making such as a one-time set up fee that could range from $200-$500 per equipment and/or a monthly rate increase of 10-20%.
Making Sense of the Numbers
Let's take a look at this hypothetical scenario for example: A commercial-grade pizza oven costs $20,000 to purchase outright. If you lease the same oven, you might pay $600 monthly for 48 months.
Here's a cost breakdown:
Buying:
• Upfront cost: $20,000
• Maintenance: Your responsibility
• Total cost after 4 years: $20,000 + maintenance
• Resale value: Still yours to sell
Leasing:
• Monthly payment: $600
• Total after 4 years: $28,800
• Maintenance: Often included (restrictions may apply)
• Resale value: $0
Hidden Factors Nobody Tells You About
Many equipment leasing services include maintenance packages in their agreements. The benefit to save thousands in repair costs and headaches is often overlooked. If your freezer breaks down during Friday night service – with a lease, one call usually solves it all. While maintenance packages in equipment leases sound great on paper, there are several hidden drawbacks that shouldn’t be overlooked:
• Many contracts specify "normal wear and tear" only
• Coverage exclusions for operator error or misuse
• Specific maintenance time windows that might not align with your schedule
• Requirements to use their designated service providers, even if local options are faster
• Required equipment training for staff (sometimes at your expense)
• Deductibles for certain types of repairs
Reselling can make owning your equipment more attractive than initial calculations suggest because although ownership may require large upfront capital, you can sell your equipment when you upgrade. This gives you the option to recoup some costs and roll the cash into new equipment. Whereas when you lease, you may consider those monthly payments as sunken costs! But hidden factors can catch business owners off guard! Maintenance costs can quickly add up, with repairs costing in the realm of $200 - $1,000 per unit depending on the unit conditions. Energy inefficiency in older models can inflate utility bills, while non-compliance with health and safety regulations may result in costly fines. Installation fees, repairs, and cleaning expenses are all additional costs to consider.
Help Me Make a Decision!
So, before you make your decision, ask yourself these questions:
1. How much working capital do I have?
2. How much capital do I have reserved for emergencies?
3. Will this equipment still be useful to me in 5+ years?
4. Where do I see my business in 5-10+ years?
If you're just starting out and need to preserve capital, your restaurant might evolve quickly, or you want predictable monthly expenses then leasing equipment makes perfect sense for you. If you have stable and reliable cash flow, certain about your restaurant's direction, and know you can cover emergency expenses then buying is the better option for your business. A good rule of thumb is to keep 3-6 months of capital reserved for unexpected costs, slow periods, or emergencies without jeopardizing your business.
Remember, the goal isn't to just save money – it's to make the best decision for your restaurant's current situation and future growth. Sometimes, the slightly more expensive option might actually be better for your business in the long run.
There's not a one-size-fits-all answer to the “lease vs. buy” question. The smartest approach is often a hybrid which is to buy the timeless equipment for your kitchen (like ranges and refrigeration) and lease equipment that requires frequent updating or has high maintenance costs.
Pro Tip for 2025
With equipment costs rising, many suppliers are offering creative financing options. Don't be afraid to negotiate terms or ask about lease-to-own options that combine the benefits of both approaches. Your equipment strategy should be as thought out as your menu selection - it's that critical to your success!
Need help crunching the numbers for your specific situation? Consider consulting with a restaurant equipment specialist who can provide detailed cost comparisons based on your unique circumstances. The best choice is the one that keeps your kitchen running smoothly while maintaining healthy cash flow for growth and unexpected challenges.
