Buying equipment and leasing it create different obligations

Define the equipment requirement first

Begin with the specification the operating system requires. Identify the approved model, capacity, installation, training, maintenance and any software subscriptions. Ask whether the franchisor permits alternatives and who must approve them. Comparing finance quotes is premature if they concern different equipment or different service packages.

A low monthly payment can omit delivery, setup, repairs or a payment at the end. Ask each provider to describe exactly what is included and what remains the owner’s responsibility. Keep quotes in a common format.

Compare the life of the arrangement

Create columns for upfront cash, scheduled payments, service, insurance, upgrade rights, early termination and end-of-term treatment. Determine who owns the equipment during the arrangement and what happens if the business closes, relocates or transfers. Have an adviser examine guarantees and other obligations in the actual agreement.

Consider downtime as an operational question as well as a cost question. Ask who responds when an essential machine fails and whether replacement equipment is available. A service promise should name a process rather than rely on a general description of support.

Match the term to the business plan

An equipment commitment can outlast the period you expect to operate a particular site or format. Review its relationship to the lease and franchise agreement. Ask an accountant to compare the options on consistent assumptions, including the cash needed to start and the obligations that remain if plans change.

Put it on paper

• Compare identical specifications and service scopes.
• Read early-exit and end-of-term provisions.
• Review timing and cash obligations with an adviser.

Continue with the franchise research checklist, our FDD guide, and the research directory.