Dave Eagle

Buy or Lease? Our Handy Guide to Securing Your Venue’s Equipment

Starting a new restaurant? Here’s what you need to know before going shopping for the essentials.

Along with the excitement that comes with setting up a new restaurant, is the stress of bringing your vision to physical fruition. Next to securing the right premises and talent, the biggest expense on your list will likely be equipment – everything from ovens to fridges, blast chillers to coffee machines.

No doubt business owners new to the hospitality industry have plenty to think about before going shopping for kitchen appliances and other sundries. And when you’re spending before you start making, it’s easy to let the often lengthy decision-making process get in the way of the fun bit – procuring the shiny tools that enable your trade.

To help you make that all important decision, we’ve outlined what you need to consider when fitting out your venue, and offer some tips on how to pare down costs while setting up your new establishment.

Before anything else can happen

An industry survey by RestaurantOwner.com showed that respondents shelled out anywhere from $30,000 to over $115,000 on kitchen and bar equipment alone when setting up their outfits. That should give you some idea of how much you can expect to spend right away, not including the smaller stuff, such as takeaway packaging, napkins and cutlery.

So before you start googling vendors, It’s important to first consider:

  • What type(s) of equipment will let you bring your menu to life most efficiently.

Changing your menu can help you stay relevant to your customers, keep up with food trends and increase profit margins over time. If the plan is to use local or seasonal ingredients, your menu will likely change more than twice a year. Consider if the equipment you have in mind can accommodate a frequently-updated menu. That said, you might be able to save some money by buying a multi-purpose appliance, but can it work as quickly when you’ve got lines going out the door?

  • What you need to meet government regulations.

Along with finding equipment that does the job, you’ll also need to ensure that your fitout meets the Australian government’s premises and food safety requirements, so you don’t fail any audits when the inspectors come.


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And then, we can move on to the basics.

New or used?

The advantages of buying new over used equipment are clear – you’ll get a warranty so you don’t have to worry about wear and tear in the near future, and you get the option of choosing the latest kitchen technology which will add significantly to your business’s value. Plus, thanks to recent legislation, the Australian Tax Office allows small businesses with depreciating assets costing less than $20,000 each to be written off immediately.

Source: Australian Tax Office – Guide to depreciating assets 2017

On the other hand, getting used equipment will mean saving a considerable sum of money that can go towards funding other parts of the business.

Chef Luciano Loffredo, of Brisbane-based Porcini Restaurant and Bar says “used was a cheaper way of trying to get the business started and it works the same as something new, so there’s really no downside.”

“Used equipment means you get to see what works best for you, offering flexibility and more funds for other things,” he said.

While buying used also means you get the equipment as is, prices are usually negotiable and vendors may even throw in extra freebies to sweeten the deal for you.

There are also downsides however.

  • New appliances are considerably more expensive, and depreciation is something to think about – if you need to sell it all in the near future for any reason, you could be suffering a loss on your initial investment.
  • On the other side of the fence, you could be spending more money than intended if you’ve purchased used equipment that requires frequent repairs.

Sourcing your own versus approaching a distributor

It goes without saying that sourcing your own equipment and cutting out the cost of the middleman (especially if you are looking at avenues such as Gumtree) can mean great savings, but you’ll also have to:

  • do the required research and find a trustworthy seller.
  • prepare a lump sum payment in most cases.
  • sort out your own avenues for repairs and ongoing maintenance.

Going to specialist F&B equipment suppliers can take the headache out of sourcing and financing the tools you need to get your business up and running. Many allow you to work towards discounted equipment ownership after a year, with a choice to upgrade if needed. You just need to weigh cost over convenience in this case.

Behind the scenes in Sonoma’s kitchen with all hands on deck.

To buy or to lease? That is the question

According to the Australian Bureau of Statistics (ABS), 17.2 per cent (or 14,345) of businesses in the accommodation and food services space exited the industry from June 2012–2016.

The ABS also found that while these businesses had the highest entry rate in the same period (19.2 per cent), they also had a survival rate of 53.3 per cent, the lowest among other industries. Basically, half of businesses in the accommodation and food services industry don’t survive.

Although this figure includes those that closed voluntarily, high operational costs remain one of the biggest challenges facing hospitality businesses today – which makes procuring equipment one of the most important decisions you will make at the start of your venture.

So to buy or lease? Here’s are a few points to remember going down either route.

Buying the equipment you need – it’ll build equity

ProsCons
An immediate asset
Purchased equipment automatically becomes an asset to the business. Lease payments, on the other hand, are treated as a liability.
Higher initial costs
Big costs may make it difficult for you to pay for expensive equipment all at once, which might mean settling for an inferior option.
Cheaper in the long run
Owning your equipment outright means no worries about monthly leasing costs or interest rates, which can tack on  an additional 6 to 10 per cent.
Worry post-warranty
After warranties expire, you’ll need to deal with the cost of repairs and maintenance yourself. Depending on the damage, you’re looking at spending anywhere from a few hundred to a few thousand dollars on this.
Stuck with outdated tech
Having the latest kitchen tech can result in better savings in the long run ($1 million in the case of US chain Arby’s). But buying anything means you’ll be stuck with it for some time.

Leasing your equipment – a more sensible choice for the cash-conscious

Pros Cons

More flexibility
Some equipment leasing companies also offer bundle deals that let you pay for a high-value package of equipment (that would otherwise cost thousands) over affordable monthly instalments.

Less choices
Product availability may be limited  depending on the stock of the leasing  company. You may have to end up settling   for a second or third choice.
 

Opportunity to buy at end of lease
Many restaurant equipment suppliers have a rent-to-own scheme. RentLite for one,    lets you buy the equipment you’ve rented for $1 at the end of the lease term.

 

Higher costs over time
You’ll have to factor in equipment rental  interest rates and a monthly cost in your P/L.
Fuss-free maintenance
If something breaks or has issues due to wear and tear, the leasing company usually takes care of it.
Easier to acquire
An equipment lease is often easier to acquire, compared to getting a bank loan to buy equipment.
The kitchen at Mecca Coffee (Sydney).

A few tips to save some cash while you’re at it

Whether you decide to buy or lease your working equipment, heavy spending is unavoidable with every new venture. These are however, some practical ways you can save in other areas:

Miscellaneous equipment such as glassware, cash drawers or the production printers in your kitchen can be bought secondhand or online. If your establishment can go paperless, you’ll be able to save anywhere from hundreds to thousands of dollars, which can then be put towards other aspects of the restaurant.

Research has proven that taking steps to practice energy efficiency from the start will help you save money in the long run. One notable example includes Gelato Blue in NSW, which saved $2,000 a year by improving its refrigeration and air-conditioning systems.

Keep a close eye on your inventory from the start, because wasted stock is essentially money down the drain – research from the New South Wales Environment Protection Authority once found that 74 per cent of food in Sydney restaurants were wasted even before it got to the consumer. If you’re already using Kounta, enable the Wastage Add-on to accurately record what you waste, understand how much you’ve lost in terms of cost and revenue, and see where you need to address the problem.

With many small businesses in the hospitality industry struggling to stay afloat today, it’s a must to plan for long-term survival when purchasing your business’s equipment.

Whether you go down the path of buying, leasing or doing both, work from developing your menu and the essentials you need to fulfil government requirements before you go shopping. That’s your surest chance of preventing buyer’s remorse or dealing with the hassle of changing your purchases later on.

One thing we know for sure – set your operations up to do more with less and you can avoid spending more than you need.

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