technology upgrades

Financing technology upgrades for your foodservice business

By John Clausen

In order to stay ahead of your competitors and continuously improve, you need to examine all aspects of your business, from staffing to menu pricing to the technology used in your business to enhance decision making, service and customer satisfaction.

Unfortunately, technology can be expensive. For a foodservice business, the upfront cost can be almost prohibitive to convert from an existing technology or implement a new technology enhancement which may include hardware and software upgrades, systems, local infrastructure (including building enhancements, electrical and communication services), cloud-based solutions and others.

You must match your cash inflows and outflows to keep your business afloat and usually, unless you are a large successful enterprise with plenty of cash reserves or bank credit facilities available, matching a significant upfront technology capital expenditure with current cash inflows is often impossible.

Let’s examine how we can do this and match future cash inflows to the business with cash outflows. Here are some of the best options for financing your technology and equipment investment:

  1. Currently available bank lines of credit — For a growing business or for a constrained business it is difficult to do this. In any case your first call should be to your bank representative to see if a credit line increase is possible. These may be currently fully drawn or needed for other working capital based purposes. Usually not the best way to match cash flows for large technology outlays that may have future financial benefits but large up front costs.
  2. New bank credit facilities – Usually this takes time to negotiate, must be heavily documented and plans and forecasts presented and can be difficult for a foodservice business to do from a credit perspective. If you have a good banking relationship by all means go to your banker and with vendor support and data, request a term loan or other such debt instrument that is repayable over a fixed term and attempts to match the benefits of the new technology from a revenue and cash generation perspective to the payments required to finance the purchase. Your banker will need data and evidence that this is of benefit to your business. An updated business plan may be requested and current financial statements.
  3. Vendor financing – The supplier who may be providing a full-service installed technology solution with training quite often will provide some form of vendor financing. This can be via the vendor themselves or sometimes through a third party lender and/or leasing company where significant physical equipment costs are part of the package. Be careful that you do not breach current banking agreements when signing to purchase and finance with a vendor. It does make perfect sense to ask the seller of an expensive technology upgrade to demonstrate their belief in the benefits of what they are selling by financing it. Make sure the interest rates and terms are acceptable. You could even tie the payments on vendor financing to the performance of their technology solution if it is measurable and their claims in this regard call for substantial cost savings.
  4. External leasing companies — They provide higher-risk financing and are usually secured directly against the equipment being financed. This may require the signoff of your banker to permit the equipment to be financed and debt secured by someone other than your existing banker. Check your loan agreements and, if necessary, call your commercial banking representative. Ensure that you understand the payment terms and what the implicit APR (or annual percentage rate) is that they built into the lease. Also look at the end of lease buyout. Is there a market value buyout determined by the leasing company at end of lease or a nominal sum of say $1 to buy out the lease? The difference may affect your lease payments but also can impact the cost of the financing if the end of lease buyout is substantial, the lessor may have already recovered most or all of the value of the goods plus interest and the buyout amount is all bonus for the lessor.
  5. Government agency guaranteed or secured financing — Either directly through your bank or through the agency itself such as Business Development Bank of Canada (BDC). My experience with certain of these agencies is that the foodservice industry is not well supported by them and this may be difficult to obtain.
  6. Personally guaranteed debt that draws on your personal lines of credit and available resources. This may be an option but can leave you very constrained financially.
  7. Crowd sourced funding – The latest new tool to use when funding expansion, growth or new business start-ups in general. As a member of the Crowd Funding Association of Canada and an attendee at their annual conference in Toronto, I would suggest that for some of you this may be a good source to tap into for a number of business expansion-related opportunities. There are now approved Equity based Crowd Funding guidelines in place for some provinces including Ontario.

To summarize the above financing alternatives, I believe they represent the best range of options although there are some other higher-risk options available in terms of lenders and venture capital financing that I think are out scope for this discussion.

About the author:

John Clausen CPA, CMA, Acc. Dir. is Senior Vice President, Collins Barrow Durham Consultants Inc. and has over 30 years’ experience working with businesses of all sizes. For more information, email

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