MARIETTA, Ga. — When it comes to acquiring commercial laundry equipment, businesses face a decision between buying and leasing. Each option offers its own financial, operational and maintenance implications that can impact the bottom line.
This article explores the key differences between buying and leasing, which can help investors and business owners make an informed choice that aligns with their financial strategy and operational needs.
Since authorized distributors are frequently the source for new equipment, American Coin-Op sought the aid of a distributor representative, Jason Downey, executive vice president of business development for Southeastern Laundry Equipment Sales, to learn more about the topic.
“The interesting part to me is there are different types of leasing. That’s the biggest factor on the benefits,” he says. “Most laundromat owners are financing, and there’s significant upfront capital on that where you’re typically putting 30-35% into a deal vs. a lease would be less than that.
“When you start talking about real-world or day-to-day advantages of leasing, it depends on what kind of lease you’re talking about. Is it a capital lease or is it an operating lease? I think the most common in the laundromat industry is probably a capital lease. I don’t think there are a lot of distributors putting out operating leases on full stores.”
Downey says most typical “mom and pop” laundromat owners are probably going the route of a capital lease or financing “because they want that payment to (eventually) fall off.” The sophisticated or larger groups of investors entering the industry may look more strongly at an operating lease for starters.
“I think you need to define what type of lease works best for you and what type of business you want to run, and how hands-off or not hands-off you want to be,” Downey says. “Do you want to be the one fixing the equipment, not fixing the equipment? My perspective is there are different kinds of leases out there, so find out if your distributor offers that and see which is the best route for you.”
The majority of Southeastern Laundry’s vended laundry customers finance new equipment, he adds, because “once that (equipment) payment falls off, that’s when the owner’s cash flow significantly increases.”
In comparing costs between buying and leasing, financing to buy will require a higher up-front cost, he says: “When you’re taking a loan out and you have a lender lending you money, that initial cash outlay is going to be more significant.”
He estimates that in a $600,000 deal, for example, an individual would need $200,000 in cash to finance it but half that much to lease.
The provision of maintenance is treated differently depending on how the laundry equipment is being acquired, according to Downey.
Where general, everyday maintenance is concerned, most of it— cleaning lint filters, making sure drains are kept open, keeping the machines clean —will fall on the laundromat owner.
“But I will say the actual service work, fixing something that’s broken, that would vary depending on the program. I would say the capital lease and probably the financed (deal), that’s more on the owner … whereas an operating lease would be more all-inclusive (and cover) trip charges, service costs.”
In Thursday’s conclusion: Potential tax benefits, operational flexibility
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].