This post was last updated 584 days ago.

Starting a new restaurant is difficult enough during the best of times. Trying to do so during a
pandemic may lead to people saying you’re taking a long shot. However, most successful
restaurateurs didn’t get where they are on safe bets. That isn’t to say they throw caution to the
wind. It’s especially important to be careful when signing contracts. A low point of sale (POS) or
payment solution price may be attractive. However, it may be tied to vendor plans to protect
income by charging an early termination fee (ETF). In that case, it may not be the best deal for
your restaurant.

What Is an Early Termination Fee?

It’s common for vendors across industries to advertise the lowest upfront costs. However, their
contracts may say they can collect substantial fees if the merchant cancels the contract early.
This early termination fee acts as an incentive for the merchant to avoid canceling. For example,
it’s the reason people keep their cell phone plans until the contract is up. But a restaurant may
not be able to afford to keep a solution that is no longer providing value.
The adage to “always read the fine print” definitely applies here. It’s critical to dive into the
details in order to give your business flexibility so you can pivot as your needs change in the
future due to:

  • Competitive pressures and the need to differentiate your business
  • Consumer demands
  • Using new technology that your current vendor doesn’t provide

Unfortunately, you also need to consider that your restaurant concept may not succeed. The
National Restaurant Association estimates that 30 percent of restaurants fail in the first year of
operation. That is an important fact when a new restaurateur signs a three-year contract with a POS or
payments vendor.

Also, keep in mind that during the pandemic, about 110,000 restaurants closed in 2020. Many of them
had been in business for 10+ years. Depending on what your contract says about early termination, even
if you close your restaurant, you still may owe thousands of dollars to your vendor.

When you do the math, trading low upfront costs for long-term contracts with an early
termination fee suddenly just doesn’t add up.

Assess the Risks and Proceed with Caution

When you’re excited about deploying new POS or payments technology, it may seem
counterintuitive to consider how you’ll retire it. But it’s important to address. The best solution
for your business may not be the one with the best “sticker price.” That solution may actually
have a higher total cost of ownership (TCO) than a solution with a higher upfront cost or
monthly rate.

Make sure you work with a POS solutions provider who will take the time to ensure you
understand the terms of your contract, including any early termination fees and exactly what
would happen if you need to end your contract early. A solution providers’ transparency and
integrity will ensure your business never faces high, unexpected financial penalties. To see what
it’s like to talk to a restaurant POS solution provider who is upfront about all the costs you’ll
incur, contact us.