At some point of you are running a business you may have to ask yourself whether it is more viable to considering buying your business premises or paying a lease.
When it comes to commercial real estate issues such as negotiating a good purchase price or agreeing to a long-term lease, it is an answer that can only be find by asking a number of pertinent questions and weighing up the pros and cons.
Finding the right premises
Your business premises should ideally be as near to a perfect fit for your requirements as possible.
This generally means ensuring that you have enough space to meet your current needs but enough room to allow for some expansion as the business grows, so that you don’t have to keep moving.
Budget is also a key issue, as affordability can make a big difference to your bottom line and you don’t want to be trying to generate just to pay your overheads, which can happen if you take on a lease that is too expensive.
The decision as to whether you should buy your own commercial property is likely to be influenced by a number of factors which combine to make a compelling argument that either comes down on the side of buying or leasing.
One of the areas that you should be looking at when evaluating the merits of buying or leasing, is to take a look at how much growth your business has achieved over the last few years and then try to envisage where you think you will be in the next five years or so.
Planning ahead is critical for many businesses, regardless of how large or small your company happens to be, and setting your business goals can play a pivotal role in helping to decide what size and type of commercial premises you need to secure to allow for that growth.
Perhaps strangely, if you are experiencing record and sustained growth within your business and your workforce and space requirements are constantly evolving to cope with this scenario, it may be preferable to consider leasing, so that you can respond quickly to your expansion needs.
Another way of looking at your continued success and positive cashflow, is to plan for where you see the business in the long term and take the step of buying your own business premises which may be too large for your present needs, but allows for growth and can become an asset on the balance sheet at the same time.
Cash in the bank
A fundamental aspect of buying your own commercial premises as opposed to leasing is having enough liquidity to be able to afford that option.
You will need to have cash in the bank to be able to offer a down payment and it is also important to remember that when you are the owner of the business premises and not the leaseholder, all of the property maintenance, regular inspections and repairs like mending a broken HVAC system if that happens, all fall on your shoulders.
If your cashflow is sometimes a bit tight because you are expanding and have plenty of additional costs, it might make sense to sit tight until you have a buffer in terms of cash in the bank, so that you comfortably afford the down payment and upkeep costs.
Security of location
Another positive point about owning your own business premises is that the space is secured and you don’t have the worry of having to find somewhere else if the landlord gives you notice or raises the rent beyond what you find acceptable.
There is always some uncertainty when you have a lease of the premises, especially when that term is nearing the end, as the renewal terms may not be as favorable as before.
You don’t have any of those worries if you own your own business premises.
The value of equity
If you are in a position to buy your premises outright or even if you put down something like a 25% deposit or more, you are instantly creating some equity and strength to the balance sheet.
This has some benefits beyond property ownership of the building, as having some equity could enable you to gain some commercial funding against the property if you need to and it also adds to the value of the business if and when you decide to sell either the business in its entirety or just the premises you own when you move on.
There are plenty of good reasons why a lease may be a better option as well as sound arguments for buying, so it mainly comes down to what shape your business is in and what plans you have for the immediate future in terms of expansion.
For over 10 years Eli Russell has worked as the Chief Marketer and Leasing Agent for JGM Properties. In that time she’s placed nearly 500 business tenants in a new office, retail, commercial, industrial, or warehouse space rental. Because they have so many different types of commercial real estate space available for lease throughout the Minnesota Twin Cities Metro Area, it’s afforded her the opportunity to meet thousands of entrepreneurs and business owners in Minnesota.
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