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How to Purchase Equipment for a Restaurant – Business Finesse

restaurant equipment

Purchasing equipment for a restaurant is a daunting task.  There are three phases to successfully purchase restaurant equipment.  The first is planning, see How to Purchase Equipment for a Restaurant – Planning Phase for more information about this phase.  The second is research, go to How to Purchase Equipment for a Restaurant – Research Phase for an understanding of this phase.  This article covers the third phase of purchasing equipment, using business finesse to negotiate the best deal.

 Business Finesse

 If you have done your job correctly, you are now ready to buy the equipment and get it staged to install in the restaurant.  I’m going to make this easy for you, get CASH.  No checks, no credit cards, no buying on vendor terms.  Straight cold hard cash will get you the best deal.  Lots of Grants and Franklins will save you even more money.

First, take your list to the one dealer that had the most items on your list in his store.  I’m referring to the used items.  Keep your dollar section from printing.  Hand your list to the dealer and tell him that if he can fill this entire order, what price will he charge?  Remind him it’s a flat out cash deal.  No checks or credit will be used, just cash.  If he can’t fulfill the order with a great price then you’ll have to spend time negotiating piece by piece and that will take time and he will lose out on some sales because you’ll be haggling with others for the same piece of equipment.  So more than likely he will lose out on a lot of sales.  Put the ball in his corner to create a good price.  It will take him a few days to develop a deal.  The longer it takes him the better for you.  It means he is investing a lot of time into the deal and he’ll be more inclined to make a deal with you because of his investment.

If you are lucky he’ll have a decent deal to present.  Before you go to meet with him write two numbers down on two different pieces of paper.  The first is the higher number and this should be slightly lower (about 17%) than your combined used price column.  The idea here is that most likely the deal the used equipment dealer puts together will be a little lower than your used price column.  Since the deal is so large in nature, the equipment sales representative will most likely approach his manager or the owner of the business to seek out a volume discount.  This volume discount will range around 12 to 14%.  So your 17% request will not be that far off from the volume discount.

The next lower number should be around 26% less than the used column number.  This will be about 20% higher than the auction price.  Remember the dealer is purchasing the equipment at auction price and reselling to you at the used price.   So even at this level of a price, he’ll still make some margin.  The key is that he makes a lot of margin because of the volume of money involved. 

Put the higher price in one pocket and the lower price in another pocket (remember which is which).  Now walk into his store and review his deal.  More than likely he’ll be about $2,000 higher than your higher number.   I estimate he’ll discount the package about 12 to 14%.  This means he has taken into consideration the volume discount and the cash discount.  Now you have a point at which to negotiate.  Tell him, before coming in there that you wrote a number down (the higher number) and that is the absolute highest price you can pay for the entire deal.  He’s at 12% discount on the used price; you are at 17% discount on the used price.  Pull it out and hand it to him.  Remind him that you have the cash with you (bring it in a briefcase and open it up and show him) and you are willing to sign the contract right now at that price.  If he can’t agree to that price then you’ll have to negotiate with other equipment dealers on a piece by piece basis.  There is a high level of confidence here that the dealer will agree to your price.  They want to make a deal because overhead gets covered for the week, payroll gets met, and the equipment dealer gets to continue in operations.  I can assure you, there are very few of these types of deals walking in the door at the equipment reseller.

If he offers a 20% or so discount which is better than your higher price, pull out your lower number (the 26% discount) and use that as your basis for negotiations.  Again, just as in the prior paragraph, he’ll up his discount in order to make a deal.  He may not go with 26%, but he’ll settle around 24% to make a deal.  You can still claim the ‘this is all the money I have for investing into the equipment’ as your crutch to get the best deal possible.  But just in case, bring a few hundred extra dollars (twenties, tens, fives and ones) and label this as your own money (it should be in your wallet).  This will seal the deal if there is going to be one.

The key to negotiating a good deal with the equipment supplier is based on these business principles:

  • It’s the entire package or you’ll seek out another equipment supplier for him to negotiate the package (this is probably the most important aspect of getting the best price)
  • All used equipment
  • Sole negotiation discount (you agree not to go to another equipment dealer for so many days)
  • Volume discount
  • Cash discount
  • Time for the equipment supplier to put the deal together increasing their anxiety to make a deal

If this used equipment package purchase falls apart, trust me it isn’t like you lost.  It may feel that way but this guy will call you in about two days to renegotiate.  Making a sale and getting paid in cash is a highly successful business deal in any business.   Go ahead and provide the same opportunity to another equipment dealer except explain to this dealer that there is no sole negotiation situation.   While you are waiting, don’t forget to continue negotiations with the landlord (the closed restaurant).

One of the key elements of the landlord situation is the local property tax compliance.  The landlord may have physical possession, but the local government may have actual title to the equipment.  This should be a deduction from the landlord’s payment.  In effect, you agree to this deal if he holds clear title to the equipment.  So you can agree to purchase from him the equipment provided he clears the title beforehand and you have it confirmed with the local government. 

One other caveat, sometimes the state or the Internal Revenue Service takes title due to nonpayment of taxes.  Research this history too.  If you have any questions, contact me at dave(insert the usual symbol)businessecon.org.

So, right now you have several deals working, the equipment dealer (he’ll call), the second equipment dealer, the landlord possibility and it is time to line up your auctions.  Stay in contact with the auctioneers and get on their e-mail and mailing lists. 

Within a few weeks deals will begin to solidify and you may end having to negotiate smaller package deals in order to completely gather all the equipment together.  This will take time and if properly executed the savings of tens of thousands of dollars will be worth the time invested.   Use business finesse in negotiating the purchase of restaurant equipment.   Act on Knowledge.

If you have any comments or questions, e-mail me at dave (insert the usual ‘at’ symbol) businessecon.org.  I would love to hear from you. If interested in my services as an accountant/consultant; click on My Services in the footer of this article.

 

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About David J Hoare (386 Articles)
I spent 12 Years as a Certified Public Accountant, Over 20 Years of Practice in Accounting and Consulting, Controller in Management of Closely Held Operations, Masters of Science in Accounting, Prepared over 1,000 Business Tax Returns and Hundreds of Individual Returns

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