Restaurant Technology – Is Financing Smarter Than Paying Cash?

Warren Buffett once offered some concise and simple advice to help people grow our businesses and, in general, live their lives. 

Rule number one: never lose money,” Buffett said. Rule number two: never forget rule number one.” 

When it comes to buying new technology to support your restaurant’s operations, its always best to pay cash, right? The conventional thinking is that financing adds a stream of interest expense to the cost of the equipment, making financing a more costly option than using cash alone. While this is true, like most things in business, there are other factors to consider before accepting that paying cash is a smarter decision than financing.   

Let’s accept the fact that money isn’t free and there is always going to be some sort of financial burden when you finance your equipment. That said, financing should be considered when attempting to acquire restaurant technology if the rate is competitive 

Consider this quote from oil mogul and billionaire Jean Paul Getty, “Lease that which depreciates. Buy that which appreciates.” Cash is king and an important commodity for business. Really, the only time you shouldn’t consider financing is if you have no other use for the cash at hand. Let’s be honest, its doubtful that you don’t have tradeoffs to make between inventory, equipment, marketing, payroll, etc. While it’s nice to find the best POS hardware for your restaurantinvesting into your business is a balancing act. 

Stop and think for a second about your last vehicle purchase. If you’re anything like me, you were probably inundated with financing options. Maybe you took the leasing option, signed the paper and left the lot with a brand-new car and a contract binding you for three years. Perhaps you watched one too many finance shows on TV and decided that paying straight cash was the way to go. Or… you were intrigued by the standard deal where you put a couple thousand dollars down and take out a loan you pay back over several years. 

While the large-scale restaurant chains are more likely to buy new equipment outright using cash they have on hand, it’s not always realistic for you to go out and do the same thing. A new POS terminal can easily cost thousands of dollars, but financing is an efficient way of purchasing those needed items while keeping more of that hard-earned money in your pocket. 

As an example, instead of spending $15,000 in cash for POS terminals all at once, finance a portion of that amount each month and use the balance of your cash to invest in programs and other ways to grow your business. The money you’re not spending now can be used to help generate a marketing campaign, develop a loyalty program or invest in décor. Rather than taking that $15,000 and sinking it into equipment that you’re going to hang onto until it dies, you can use that much-needed cash now to make vital improvements. 

According to a study by the Equipment Leasing Association of America, the organization estimates that about 80 percent of companies lease at least one piece of equipment. In 2004, the ELAA said companies leased about $220 billion worth of goods and that number was expected to grow. 

Not to mention, a leasing program doesn’t tie you to a POS solution that you aren’t in love with. Once the lease is done, you can either purchase the system (just like you would when leasing a vehicle) or opt for an updated model and start the process over again. 

Another reason not to spend cash and financyour purchase instead; it helps your credit rating. By creating a new credit source and making timely payments against it, you’ll be able to increase your credit rating over time. Finally, don’t forget the sawtooth effect of paying cash up front. After the purchased technology gets to a point where it is no longer usable, you will likely need to forecast for another big cash outlay. 

Financing isn’t a perfect system, though. Although you’re likely to save a lot of money at the onset and will be making lower payments each month, you’ll likely end up paying a higher price than you would if you had paid for it in cash. How much more? That depends on the terms of your agreement, including interest rates and how much money you put down. 

But that should not stop you from taking advantage of financing. Sure, it costs a little bit more over time, but you’re also not beholden to an aging piece of equipment that you’ll have to use long after its lifetime has come and gone because you tied up all that money early on 

In summary, its not “wrong” to use cash to pay for restaurant technology and, in fact, there are a lot of reasons why cash payments might be preferred. But almost all businesses face decisions about what to do every day, and most of those decisions involve using cash. It is far better to responsibly stretch that existing cash toward efforts that help grow your business and return more revenue and profit to you than tying it all up in depreciating equipment.