Restaurant Equipment: Renting vs Leasing
Renting and leasing restaurant equipment are both wonderful options that allow new and tested restaurateurs to keep costs low and their books balanced. Yet each option has its pluses and negatives.
The reality of restaurant ownership is that it is difficult. According to a study done at Ohio state university, 60% of restaurants fail before reaching their one-year milestone (not the often rumored 90%-95%). That staggering amount means that business owners really do have to consider their future when starting out. Leasing equipment means that you are locked in for one year. While there are benefits to that, the reality of leasing for a full year is that regardless of whether or not your restaurant has survived its first year in business, you are liable to pay for the remainder of your leasing term. Companies are often willing to negotiate, especially considering their products are being returned to them and can be leased out to another client, however, there are financial penalties for breaking a lease.
That being established, renting can be a safer option for restaurateurs that are just starting out. With the 60% statistic in mind it makes sense to rent month to month. While no one wants to think that their restaurant will fail, it is something that could happen, and going with a month-to-month rental for restaurant equipment, instead of a yearlong lease, can help keep you safe if you do have to close your doors – as you would only have to pay out the remaining month of rent instead of negotiate out of a lease agreement.
As far as flexibility goes, renting is the better option. Renting gives owners the opportunity to easily upgrade or change their equipment (i.e. from an electric range to a gas range). It also allows them to change providers, if their current provider does not offer the products they need, or if a relationship does not work out. When leasing equipment that flexibility is missing. Sometimes, when leasing, there is the ability to upgrade, as it enables the provider to make further profits, but not always – and there is definitely no option to downgrade.
Leasing, however, is a better option when it comes to cost. Renting is always more expensive than leasing. A piece of restaurant equipment that is $50/month to lease would total $600 by the end of the year. The same unit, rented, would cost around $20/week, the total for the year reaching $1040. Leasing equipment also has more stable pay periods. When leasing there are 12 pay periods in a year, one for each month; when renting weekly there are 52 pay periods in a year. Why this is a problem is that people often mistakenly calculate that they will have 48 pay periods in a year, not 52. This is because they calculate it as 4 weeks per month, equaling 48 payment periods, rather than 52.
Leasing also often offers the option of lease-to-own and lease for free. Lease-to-own is when, after a certain length of time leasing, the provider will offer a business the opportunity to purchase the piece of equipment at a reduced rate. This gives restaurateurs the opportunity to add equity to their business in a cost-efficient manner. Lease for free, on the other hand, is when a company provides you with the piece of kitchen equipment you need with the agreement that you will purchase their products to use in the kitchen (i.e. lease a dishwasher for free but only buy their dishwashing liquid).
Renting and leasing both have their pros and cons. What restaurateurs – both new and tested – have to do is weigh these options themselves and find which the right fit is for them.