Kitchen Economics: Lease Today, Own Tomorrow?

The decision to either lease or purchase kitchen equipment represents a considerable capital investment decision for small and medium-sized hospitality sector organizations, and can have a significant impact on cash flow and profitability. When considering the commercial kitchen outfitting course of action, the costs can be high, making the decision to lease or purchase an important decision for organizations with limited cash flow and growth aspirations.

An understanding of the finances of each alternative is critical to informing your decisions as it directly impacts both immediate operational needs and your long-term business strategy.

Trade-offs between Capital Expenditure and Operational Expenditure

The principal difference between purchasing and leasing relates to the effect each transaction has on your financial statements. Purchasing equipment incurs an initial cash outlay coinciding with capital expenditure (CapEx) requirements which lowers the available cash position of your venture, albeit with a depreciable asset being recorded as the new equipment in your balance sheet.

Leasing allows you to transform that capital need into predictable recurring operational expenditures (OpEx) while retaining working capital in the business as you take on an ongoing monthly lease expenditure.

The difference can represent a material value when pursuing the growth plans you have established for your business. Small and medium-sized enterprises often experience cash flow constraints when pursuing growth opportunities, therefore optimally preserving working capital through leasing agreements can be a compelling strategic position. This value must also be measured against the total cost of ownership throughout the service life of the equipment.

Maintenance Risk and Operational Considerations

Maintenance risk and operational considerations are aspects of TCO that must be addressed when vendors do not service purchased equipment to ensure functional integrity within the framework of industry suggested maintenance requirements.

Maintenance of most equipment is inherently embedded in the overall or unit price for any leased equipment. For example, each piece of equipment in the commercial lease is typically included in the monthly rental rate or separate maintenance provision. Certain pieces of equipment present unique maintenance options, especially ice makers. Leading brands such as Hoshizaki ice are incredibly involved at a technical level to be serviced by any company that is not the manufacturer. Whether you can get Scotsman professional ice makers through lease or purchase, equipment maintenance protection is essential without proper technical expertise in service and maintenance departments.

Alternatively, if the owner purchases equipment, it takes full ownership of the equipment condition and quality of service. Thus, the owner inherits all risk in repairs and upkeep and while asserting owner control over the menu quality and service of that particular kitchen equipment.

Interest Rate Environment and Financing Costs in 2025

In the current interest rate environment, the analyses of leasing and purchasing are substantially impacted. Equipment leases in 2024-2025 are priced generally at rates between 6-8% for companies with good credit; between 9-15% for companies who have moderate credit scores; and then likely higher than that for start-up companies, or companies with bad credit. Similarly, lending rates at lending institutions and for businesses for more traditional financing varies from approximately 6.6% to 11.5%; therefore, it would be helpful to compare the cost of financing for either option to the initial costs as part of your rationale.

For most companies with good credit, purchasing using traditional financing may be a less expensive option then leasing, particularly if the equipment is expected to be in place for six years or longer in terms of operational life. Conversely, for companies with poor credit histories or if the company's management wants to keep available credit for other options at different times, leasing may be more readily available even if the cost of estimated interest is higher in a work scenario than the purchase option.

Utilisation Thresholds and Decision Framework

Assessing usage trends and expected durability of equipment can provide a practical framework for deliberation. With an adequate cash flow and access to financing, purchasing equipment will generally provide the lowest total cost of ownership (TCO) for machines expected to operate greater than eight hours a day with a life expectancy of seven years.

Leases that include options to cancel or make seasonal payments may be advantageous for machines with on-off usage patterns or uncertain levels of future demand. Similarly, equipment in rapidly-changing technology industries can greatly benefit from leasing contracts that circumvent issues of obsolescence.

Leasing may also be a better choice in the case of cash flow constraints, when an organization does not have established relationships with lending institutions, when fully- inclusive maintenance is sought, or for organizations operating in complex regulatory circumstances. In contrast, organizations with a strong financial position, proven maintenance capacity, established technology requirements, and operational stability are more likely to benefit from purchasing equipment.

Technology Obsolescence and Upgrade Considerations

The rapid evolution of kitchen technology creates obsolescence risks that are immediately difficult especially for owners who purchase equipment. New energy efficiency advancements or improved safety regulations or technology changes can make fully functional equipment economically obsolete, within its use, even when it is operational.

Leasing agreements usually have upgrade clauses or other end-of-life alternatives that allow for technology updates without additional capital costs. This flexibility may be more relevant for types of equipment that are experiencing rapid technology evolution or are subject to changing regulatory requirements.

In the case of more traditional equipment with stable technology features, for example, standard refrigeration or cooking equipment, the risks of obsolescence are low which may support purchasing decisions.

Endnote 

Leasing versus buying will be determined by your fiscal situation, operational requirement, and your overall strategic direction. Organizations with a cash flow focus and operational flexibility may find leasing worthwhile even if overall costs are higher. Organizations with substantial financial capacity and predictable operations may benefit in terms of long-term cost savings and asset development by choosing ownership.