Warren Buffett once provided some succinct and easy suggestions to help individuals grow our companies and, generally speaking, live their lives.
“Rule number one: never drop money,” Buffett said. “Rule number two: never forget rule number one.”
When it comes to purchasing new technology to strengthen your restaurant’s operations, it is always best to pay cash, right? The traditional thinking is that funding adds a flow of interest cost to the cost of the gear, making funding a more costly option than using money alone. Though this is true, like most things in business, there are additional things to think about prior to accepting that paying money is a smarter choice than financing.
Let us accept the fact that money is not free and there’s always likely to be some type of financial burden when you finance your equipment. Having said that, financing ought to be considered when trying to acquire restaurant technologies when the rate is competitive.
Consider this quotation from oil mogul and billionaire Jean Paul Getty,”Lease what depreciates. Buy what appreciates.” Cash is king and an important commodity for business. Truly, the only time you should not consider financing is if you’ve got no other use for the money available. Let us be honest, it is doubtful that you don’t have tradeoffs to create between stock, equipment, marketing, payroll, etc.. While it’s wonderful to find the ideal POS hardware to your restaurant, investing in your business is a balancing act.
Stop and think for a second about your last vehicle purchase. If you are anything like me, you’re probably inundated with funding choices. Perhaps you took the leasing option, signed the paper and left the lot with a new vehicle and a contract binding you for three decades. Maybe you watched one too many fund shows on TV and decided that paying directly money was the thing to do. Or… you’re intrigued by the normal deal where you put a few thousand bucks down and take out a loan which you pay back over many years.
While the large scale restaurant chains are more likely to purchase new gear outright using cash they have available, it is not necessarily realistic for you to go out and do exactly the same thing. A new POS terminal can easily cost thousands of dollars, but funding is an efficient means of buying those needed items while retaining more of the hard-earned cash in your pocket.
For instance, rather than spending $15,000 in cash for POS terminals all at once, fund some of that amount monthly and apply the balance of your money to invest in programs and other techniques to cultivate your business. The money you are not spending now can be used to generate a marketing effort, develop a loyalty program or invest in décor. As opposed to taking that $15,000 and sinking it into gear that you are going to hang onto until it expires, you can use that much-needed cash now to make vital progress.
According to a study by the Equipment Leasing Association of America, the company estimates that about 80 percent of businesses rent at least one piece of gear. In 2004, the ELAA said firms leased about $220 billion worth of products and that number was expected to rise.
And of course, a leasing program does not connect you to a POS solution that you aren’t in love with. When the lease is finished, you can either buy the system (just like you would when renting a car ) or opt for an upgraded version and begin the process over again.
Another reason not to shell out cash and fund your purchase rather; it helps your credit score. By creating a brand new credit source and making timely payments from it, you will be able to improve your credit score over time. Lastly, remember the sawtooth effect of paying money up front. Following the purchased technology gets to a point where it’s no longer usable, you will probably have to forecast for another significant cash outlay.
Financing is not a perfect system, however. Although you are likely to save plenty of money at the start and will be making lower payments monthly, you will probably end up paying a higher price than you would if you’d paid for it in money. How much more? That depends upon the terms of your agreement, including rates of interest and how much cash you put down.
But that should not keep you from taking advantage of funding. Sureit costs a little bit more over time, but you are also not beholden to an aging piece of gear you’ll need to use long after its life has come and gone since you tied up all that money early on.
To sum up, it is not”wrong” to use cash to cover restaurant technology and, in actuality, there are a whole lot of reasons why money payments may be preferred. But almost all companies face decisions about what to do each day, and most of those choices involve using money. It’s far superior to stretch that existing money toward efforts that help grow your company and yield more revenue and profit for you than linking everything up in depreciating equipment.