Journey Part 4: To Buy, To Lease, or To Rent Equipment – That is the Question

16 Oct

I heard someone say ‘bonkers’ the other day in an interview and it made me smile.  It’s a great word and I’d forgotten all about it.   I’ve had it in my back pocket just waiting for an opportunity to use it.  Well, here it is.

Outfitting a bakery with equipment is nothing but bonkers.  Using this word brings the littlest bit of light to this paramount task.  Here’s a partial list of the over $100,000 of equipment that I need to open Flour + Co:

  • ovens
  • proofer
  • walk in
  • freezers
  • refrigerators
  • mixers
  • sheeter
  • espresso machine
  • POS system

Let’s just say that I can think of lots of things that I could spend $100,000 on, and equipment isn’t one of them.

Joking!  If I had $100,000 to throw around, I wouldn’t spend it on an island vacay.  I wouldn’t spend it on equipment either.  I’d save it for a rainy day at the bakery when sales aren’t as good as hoped or the business needs an injection of cash.  But, I’ve got nothing extra, so the question really is to lease or to rent.

Well, let’s break it down a little more.  How’s your credit score, by the way?  Can you provide a few years positive financial history from your business?  Oh, this is a new business and you don’t have any history??  What kind of personal assets do you have that a bank can latch its claws into if you default?  Yep, those are some of the questions that you have to answer when your looking to get an equipment lease.

The bonus with leasing equipment is that it’s actually leasing to own, with a price tag of $1 per piece of equipment at the term end.  Now that’s a deal if I’ve ever heard one.  Ahem…never mind the 36 months of price plus interest that you’ve been paying.  You also get new equipment that have one to two year warranties, so you don’t have to pay for maintenance for a few years.

Leasing is a great option for large specialty equipment where the warranty might be really important and you want skilled technicians on your side in case of a problem.  It’s also a great option for equipment that isn’t available to rent.  For instance, do you have your heart set on this?

La Marzocco

Well, you will need to lease this, my friends.  Rental companies don’t have beauts like this in their inventory.  They also don’t have things like POS systems which are pretty important.  So, cross your fingers that you can qualify for some lease $$.

And, then there’s renting equipment.  Does it bring you back to the days of Rent-A-Center?  Put that memory behind you because renting restaurant equipment is quite common and a smart thing to do, especially when you are starting out and don’t have the budget for anything else.  Sure, you’re not paying towards anything, but you can change the equipment out if you grow out of something.  Maintenance fees are included in the rental.  Also, monthly rental fees are lower than leasing payments.  The equipment may be used, but it’s going to be refurbished.  It’s a great way to practice recycling.

So, what’s it going to be for Flour + Co?  It ends up a relatively easy decision when you understand everything we’ve gone over.  It’s based on a pretty simple calculation.  I’m saving my money for the really small stuff, like a tabletop mixer, pans, bowls, etc.   I also have a little money set aside for the small down payments required for leasing or renting.  Other than that, I’m leasing my few key pieces of equipment and renting the rest.  It gets the bakery going with relatively little capital and it gives me a piece of mind.  There’s one check off my list.  Now, on to the endless other empty boxes that are yearning for a check mark.

[Resources to research if you are up against the same question:  TriQuest Capital, Light Soda (bay area)]

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