Should You Buy Or Lease Your Commercial Catering Equipment?

by: Derek Rogers

Especially when you're starting a commercial venture of any sort, the question whether you should buy or lease is always hard to answer. On one hand, if you lease equipment, you don't have any equity in it and it will be a continuing expense. On the other hand, if you buy it and your restaurant fails or the upkeep proves to be expensive, you've laid out a lot of money for equipment for no reason. 

Do you have plenty of capital, or are you strapped? If you have lots of capital backing, and you know what you're doing when you look at equipment, buying is a better way to go. If you have a mechanic on staff, it's a very good choice. If, on the other hand, you're trying to run a business on a shoestring budget and you know you'll have to hire someone to fix your equipment, leasing is a better way to go. 

Do you have an established restaurant, or are you just starting out? When you're just starting your restaurant, leasing is generally better. However - do the math anyway. You may find that, if you have a year's capital, purchasing at least some pieces of equipment will cost you less in that year than leasing the same equipment. Also, if you've taken out loans, you may find that there are tax advantages to purchasing rather than leasing equipment. You can also deduct lease payments from your taxes, but it's a good idea to do a financial comparison for taxes as well. 

Leases are also easier to obtain than a capital loan. Most lease companies do not have rigorous credit requirements, and in the near future we will probably see loans get even harder to obtain. And if you're afraid your equipment will become obsolete in the near future, this is a smart choice. For commercial catering equipment obsolescence usually isn't a worry, but if you're buying a laptop or other high-tech fast-developing items, you should consider this before purchasing outright. 

Even if you can afford the outlay of cash to purchase outright, can you afford to have your credit lines tied up in this way? This is one of the most common errors made by new businesses: having inadequate cash flow. You may be better off leasing at least some of your business equipment and keeping that financial cushion open, even if it costs you more in the long run. 

Purchasing items, on the other hand, means you own it, you can break it or change it, and when you're finished with it you can sell it. If you can afford to purchase equipment, and if it will have significant resale value at the end of the time you will be using it, this may be a better choice for you than leasing. 

Before leasing equipment, make sure you're going to need it for the entire term of the lease, or try to negotiate a shorter term. Once you sign the contract, you're obligated for the full period of the lease, whether you use the equipment or not. 

If you choose to lease, it may be to your advantage to look for a company that offers you the option of purchasing your equipment at fair market value at the end of your lease. This option, in the long run, is the best of both worlds. 

Only after considering all these angles: financial, tax, and practical use, should you make the decision whether to purchase or lease. Never let someone sell you on one or the other. Instead, do the math yourself and make an educated decision for your unique business needs.