Many restaurant owners finance equipment but not all of them know how restaurant equipment lease financing affects their financials.
There are currently 980, 000 restaurant locations in the United States. According to a research done by the National Restaurant Association, the restaurant industry sales projected for 2013 are approximated to be $660.5 billion. Opening a restaurant and ensuring that it flourishes depends on a number of things and one of them is making decisions that will positively affect your financials.
Most restaurant owners find that restaurant equipment lease financing is one of the ways to ensure that their restaurants do not die a financial death. Industry research shows that nearly 1 billion of restaurant equipment is leased every year in the United States alone.
There are factors to consider when applying for an equipment lease as they can have a significant impact on your restaurant business. As of 2013, section 179 of the IRS offers generous write offs when you finance or purchase used or new qualifying equipment. We give you information on how your restaurant equipment lease financing can affect your restaurant’s financials.
How Your Restaurant Equipment Lease Financing Can Affect Your Financials
Tax Deductions
Every restaurant owner planning to lease or purchase equipment should be fully aware of section 179. Since people in the restaurant industry work with various types of kitchen equipment, many of them take advantage of the tax write off provided by section 179 of the IRS.
Current tax deductions allow you to write off up to $500, 000 of qualifying used or new kitchen equipment. For example, assuming a 35% tax bracket, if you lease a new fridge at $50, 000, your savings is $17, 500. Therefore, the total cost of the fridge after tax savings would be $32, 500. However, before you start making calculations on how much tax savings you can actually enjoy, ensure you consult a trusted and credible tax professional.
Preserving Business Credit
Another benefit of leasing for restaurant owners is that they can be assured their business credit will be preserved. When the time comes for you to franchise, open a new chain of restaurants or apply for a business loan, your credit score will matter a lot. Equipment leases do not lower your credit, instead, they help to strengthen it. As you make your monthly lease payments, your credit score continues to rise.
In addition, when in the event your restaurant is not doing well and you are not able to continue financing, your lessor will just take back the equipment and this will not affect your credit score. However, if you fail to repay a bank loan, this will bring down your credit score. Regular fixed payments made on time help to increase your credit score and this will make you eligible for a bank loan.
You Will Reduce Expenses And Save On Cash
Restaurant equipment lease financing can help you to save on cash and reduce expenses. For example, when making a purchase, you need a lump sum of money, which means you need to have a large amount of working capital. With an equipment lease, you will only be required to make a down payment for the first and the last month of your lease agreement. This money is usually refunded after some time into your lease.
The monthly lease payments that you make are fixed so you will not incur any fluctuations in your budget. More importantly, your leased equipment will not appear on your balance sheets; instead, it will be considered an operating expense on income statements. Your balance sheet will be much stronger when you have little or no liabilities.
You reduce the risk of having to maintain your restaurant equipment since you do not own the equipment. You can use the equipment and return it to the lessor or purchase it at $1, or at fair market value.
Summary
Restaurant equipment lease financing has a number of benefits. It can help you reduce expenses and save on cash, preserve and even improve business credit and you can enjoy tax deductions. You can lease a number of items including bar equipment, furniture, fryers, food warmers, ice making machines, microwaves, counter-top griddles, grills, signs and much more. LeaseQ has helped thousands of restaurants to lease the restaurant equipment they need to succeed.
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