As I travel through food franchise land, I ask franchisees who are thinking of upgrading or replacing old equipment this very question.
For franchisees, it comes down to a question they ask me- Why finance the piece? I handle that question from a different angle, I ask the franchisee to take a step back from the equipment, take a step out of the daily grind of their business, take a step up onto a metaphorical ladder and look down on what they actually own – a franchised small business, not a collection of equipment. I then ask, did you risk everything, work 7 days a week, to build a collection of stainless steel? At face a silly question and I always get the ahh… no answer. So I then ask, ok then why did you buy a business? To which I usually get to make plenty of money and work for myself… ahh now we’re talking.
Buying a food franchise isn’t so you can collect and marvel at stainless steel, owning a franchise business is about generating cash flow. and its cash flow in your business that fuels more choices in life, better schooling for you kids, nicer house, better holidays, better retirement and even more freedom, yes, don't scoff, trust me, that does come in a franchise eventually and only if you play to the right game plan.
That game plan is being smart as well as hardworking, understanding that if you focus on efficiency and leverage this builds cash flow beyond your own effort and cash flow that doesn't depend on you, that's called freedom. So with all this in mind, here are my top 3 reasons renting new equipment is both the efficient thing to do, affords you leverage and positions you drive massive growth in cash flow.
Having equipment out of warranty, old and failing kills cash flow. Picture this, your franchise sells cooked chickens and related product. Your core equipment are ovens that cook chickens. Its Friday night, that aging oven you’ve been bush doctoring finally dies. The drive thru is now clogged, people are honking, staff are very stressed and rushing orders (hint: in food, rushing is not good), the remaining oven is struggling, customers start walking out and take to social media to trash your business, there, staff decide enough is enough and over coming weeks start to call in sick or leave, you now have your family working in the business sacrificing more family time, you are in crisis mode.. okay now do the math and add up how much that reality is really costing you and compare that to a rental payment for brand new ovens
Flexibility is the key to small business success, even in franchise. It’s a fact that equipment is upgraded often, it’s how equipment manufacturers stay in business. Think cars and the endless launch of new model. All with added features, energy efficiencies, exhaust improvements, combined functions in smaller units and many other improvements. All designed to add cash flow and profits to your franchise. If growing cash flow is your game plan, wouldn’t these improvements add to that?
Beyond functional improvement, a lot of hospitality equipment is improved aesthetically (looks better) thanks to a trend to open kitchen design (visible to the customers), keep the look fresh to keep profits up because people eat with their eyes too. Equipment is also getting smaller. More can be done with smaller units. Space saved in a kitchen is either more space for seating (money making space) or less rent with an overall smaller store. Renting equipment means that when a better upgrade comes along, you can grab it without cost. No cost, better efficiencies, cash flow goes up!
Controlling outcomes is the key to success. Renting equipment makes sense if you are planning an exit in a year or two. This might mean you need to upgrade equipment to position your business for sale. Paying cash to upgrade or replace means you sacrifice essential fuel in your business to drive up cash flow. Cash pays for resourcing the store so customer experience is excellent and reflected accordingly in feedback on social media (hint: where do you think your buyer is doing research on your business).
Remember, your buyer isn’t buying your franchise to collect stainless steel too and your eventual sale price depends wholly and solely on your cash flow. There is a reason they say cash is king and not he with the best stainless equipment collections wins.