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How to Purchase Equipment for a Restaurant – Research Phase

Purchasing equipment for a restaurant is a daunting task.  There are three phases to successfully purchase restaurant equipment.  The first is planning, see http://businessecon.org/2013/02/how-to-purchase-equipment-for-a-restaurant-planning-phase/ for more information about this phase.  The second is research.  This article covers this phase of purchasing equipment.  The third in this series is using business finesse to purchase the equipment for the best price.

 Research

This is really an extension of planning.  If done properly, this will take a few weeks of work for a new restaurant.  The key is to go through your list and look at the different models for the needed equipment that are out there.  Yes, it is OK to look at the new models because you want to look at the features the newer models have that you will not see or come across as you look at the older models.  What you will discover is that the newer features are not really that critical in the cooking process.  Humans have been cooking for eons and it is about heat and timing that makes the cooking process what it is.  A faster speed or some unique handle feature isn’t going to change the outcome at the end of the day.

Create a spreadsheet with a page for each of the kitchen zones; list your equipment in categories for each zone.  Have a column that includes the optimum model and find an acceptable model for the same item and place this in the next column.  This should be referred to as the Preferred Equipment Section.  Create another section for source and price for the new model and another section for the used source and price.  Below is a guide for your spreadsheet:

Storage Zone

                Preferred Equipment                             New Source         Used Source
                Optimum Model   Acceptable Model   Dealer    Price       Dealer     Price
Walk-In        YB496                   HN488               Jim’s    $9,399      Bob’s     $4,858
Pantry Rack   16’X7’                  12’X6’               Jim’s    $2,688     Auction   $1,199

This will take several days to input the information and find the various sources for the equipment.  It is now time to take a road trip.  Tour the equipment suppliers and talk to them.  This serves two purposes, first they know you are looking and secondly they’ll teach you a few things and open your eyes to alternatives.  Take advantage of this and write it down.  Update your spreadsheet.  Whatever you do, DON’T BUY ANYTHING YET!  Again the urge will be there, but don’t act on it, just tell the seller you are doing your research, no leases have been signed and there is plenty of time to go through the negotiation process later.  Right now you are in need of information.  By the time you have recorded all this information, you’ll discover that the dollar difference between the two columns will run about 40%.  The used column will be that much less expensive.  If you are talking about a reasonably sized sit down restaurant you will see a $60,000 difference on the bottom line.  Most likely it will get into the 80 to 100 thousand dollar difference range.  So the value of planning and researching will save a lot of money.  Just think about it for a moment, how many meals will you have to serve to pay off the difference with the gross margin (total sales price less cost of food and labor)? 

There will be an added benefit of doing this research, you’ll learn about new systems and what others have done when purchasing equipment.  You really get to understand the equipment you’ll be buying and the costs associated to get it installed and running.  This will help you in the design and layout of your kitchen and this will save you a lot of money in the future.

Once your list is complete, it is time to research two more sections for comparative purposes.  The third section will be a total buyout of equipment from a closed restaurant.  WHAT?  Yes, you read correctly, it is time to find a closed restaurant and talk to the prior owner of the restaurant or the landlord that took over.  Just keep up with what is going on in the restaurant industry in your town, as you drive around, look at who recently closed up shop.  Find out why, in about 80% of the cases they failed to pay the rent and the landlord closed their doors.  Find the landlord and explain to him that you are interested in looking at the equipment to possibly buy the equipment.  In one of my client cases, the landlord offered to sell everything lock stock and barrel for about 30 cents on the dollar.  This included the wine racks, the wine, waiter trays, and even the cloth napkins.  There’s your third column.  You may have to travel some distance to find these closed restaurants, but it will be worth it at the end of the day.  Even if you could purchase a $3,000 piece of equipment for one-third the price, it is a huge savings.  

The fourth section is the auction section.  Here you need to find the different auctioneers in your area.  Tell them you are interested in certain types of equipment (generally the more expensive pieces) and you want to know what they have sold for in the past.  If he has done his job correctly, he’ll have it recorded and he’ll tell you.  Ask to be placed on his auction list for the next six months in order to have knowledge of when and where the auctions occur.  Attend a few of them and see what others bid for this equipment.  It’s not like there are 40 buyers for a walk-in refrigerator or a dessert cart.  There might be one other guy there interested in restaurant equipment and he’s there for the equipment dealers and not to open a restaurant.  He wants that piece on his showroom floor.  With your knowledge of what he sells his stuff for and your knowledge about what equipment sells for in the market, you know he’ll stop at a certain bid point allowing you to purchase the item for much less than what he sells the same item used in his store.  Auctions are a great place to evaluate the real price of an item.

By now, you have a complete list of everything you need, what everything costs new, used, closed restaurant price, and auction price.  Now it is time to begin the finesse part of the business deal.

Summary

Planning is the best tool to purchasing the equipment for a restaurant.  After defining the menu and identifying the equipment you’ll need for each of the kitchen zones, research the equipment and identify reliable used equipment.  During the research phase, seek out several equipment suppliers to negotiate with and discuss needs and wants.  Look at other opportunities for deals such as closed restaurants, auctioneers and even storage unit buyers (the auctioneers will identify them for you).  Once you know all the different sources, it is time to start negotiating.  The third article in this series covers business finesse.  Here, time and cash are your best discount generators.  Use them to your advantage and get the best deal possible.  Good luck.  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 help as an accountant or consultant, contact me through the ‘My Services’ page in the footer. 

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About David J Hoare (380 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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