Many businesses have always rented their premises and have never even considered the option of buying. But if you have the capital ready, it can actually be a fantastic option for you in the right circumstances. Let’s have a look at whether your business should buy its premises.
The advantages of buying
The first advantage to consider about buying is that it gives you complete control. When a property is yours you can choose exactly what happens in the building. It also allows you to decide when you stay or go – you aren’t tied to any a fixed-term contract that can leave you in a difficult position if your business needs to move on.
It’s also worth pointing out that buying a property will be functionally cheaper, especially in the long-term. Just as with residential properties, paying rent could be seen simply as wasted money that is going to someone else. It’s also usually the case that your repayments are likely to be lower than the price you would pay to rent.
Remember that when you buy a property it becomes a business asset too – this gives you the potential to sub-let to earn back some of the money you’re paying out. Equally when you come to move on you could even let the whole property. Additionally you could look at making an eventual profit when you come to sell. That means that buying a commercial or industrial space is perfect if this is a long-term acquisition. But that doesn’t mean that they are not a challenge.
The challenges of buying
Of course if you are going to buy that you’ll need to put in a substantial initial capital investment. You need to consider whether or not your business can afford this outlay. Tying up a lot of your capital in property may be a smart investment but it can leave your business without financial flexibility.
Also it can be quite complicated legally and you may need to consider getting legal advice before you buy. One thing you’ll need to think about is who is going to buy the premises; you or the business (more on that later).
Another issue is that you have to take more responsibility. Buying business premises places the onus on you to deal with issues like building security, maintenance and insurance. That means that instead of being able to hand issues over to a landlord to deal with, you’ll be committed to the ongoing costs associated with property ownership. Once again this can tie up capital as you’ll need to keep money spare to deal with potential problems as they arise.
Would renting be better?
Renting is a popular option for many businesses of any size as it can provide flexibility. While renting will be comparably slightly more expensive in terms of monthly payments, you won’t need the huge capital investment to begin with. When you are renting you can easily choose to up or downsize without the expense of moving.
Also remember that selling can be difficult and the commercial property market can be temperamental. Overall that means that buying is not an ideal solution for a growing business that would be better suited to giving themselves the flexibility to move with the market.
However, if your business is settled and is likely to remain in the same location for a number of years. Buying will be a much smarter option that renting – it simply depends on the specific circumstances of your company.
The legal issues
If you consider how complicated it can be to buy residential property, imagine those challenges when it comes to the business. Firstly you’ll need to consider who should own the property – or, more importantly, who is ultimately responsible for the payments. Does it make sense for you to take that financial risk rather than putting it on the business? If the business owns the building and then struggles to make the repayments it could end up dragging down the entire company. Alternatively, the business may be better placed and may have the assets to make it more sensible for the purchase to be in the name of the company.
These are all difficult issues and it can be best to take on legal advice to understand the best course of action. Experienced business solicitors can provide you with guidance to help you make the choice that is best suited to you and your company.
Things you need to consider
So before you commit to renting or buying commercial property it’s worth giving some thought to a few key issues. Firstly, do you have enough capital to invest? Unfortunately, if you’re going to buy then you will need that capital upfront. Without it, you simply don’t have the option to buy.
Secondly, are you happy to take on the responsibilities of being your own landlord? If you’ve only ever rented commercial property before you might be used to the idea of having a landlord who will take care of maintenance and other issues. If you’re going to own you need to be ready to take this on.
Finally, where are you going to be in a year’s time? If your business projections show that you are going to grow then you are likely to take on more staff. You need to be sure that the property you buy will have the space to take on those members of staff otherwise you can put yourself in a difficult position where the business needs extra space to grow but is held back by the premises.