When running a small business, it’s often possible to work from home. After all, many of the juggernauts of the business world began their efforts around a kitchen table. However, companies that are growing require more space. A dedicated area for business, whether that’s an office, store front or storage, can quickly become a necessity. When this time comes, business owners must make an important decision- whether to rent or buy. Both options have their relative strengths and weaknesses according to the specific circumstances in question. Considering that this decision can have long-term affects on the business and business owner, it’s important to choose wisely.
With this in mind, should you rent or buy a business premises?
Renting
Renting a business space can be a great option for smaller, newer companies. This is because it offers a greater degree of flexibility, which is often more important for those who are just starting out. For example, your business is small but growing steadily and you require more space. However, you don’t have the capital to invest in purchasing premises but renting offers a lifeline. Should the company continue to grow, you still have the option to buy somewhere, further down the road.
Another issue to consider is responsibility or the lack thereof. Those who rent their premises will not have to worry about issues such as maintenance and repairs, as these fall under the jurisdiction of the landlord. Therefore, business owners can spend more time and energy focused on the job at hand.
Of course, choosing where to base your business can be extremely important and this is another upside to renting- so much more choice. Whether you’re based on a single desk in an already established business, or you’re looking for a large industrial space, you’ll often find more choice when renting.
There are downsides to renting and these must be considered before making your decision. One of the main issues facing businesses looking for a premises is that rented properties are often unable to be modified. You can always ask your landlord but they have every right to refuse any changes. This can make it difficult for companies, specifically those with specialist requirements.
Just as with residential properties, renting a business premises has its financial considerations. Mainly, the idea that purchasing a property acts as an investment, whereas renting is money down the drain. It’s also worth noting that rent prices can and do go up over time and some companies may need to move in order to find cheaper premises. However, you can include rental costs as a business expense, saving on taxes.
Buying
If renting a business premises offers flexibility, buying offers stability and is therefore better suited to more established companies. Owning your own commercial property does just offer a base of operations for your business, it also acts as a long-term investment. In fact, as an investment, property can increase in value over time, meaning that should you choose to sell, you will see a decent return.
When it comes to making changes to the property, as the owner you can do whatever you want or need. This offers greater freedom and can be an important factor for those who require specific physical requirements.
Businesses that own their own property, often enjoy specific benefits. For example, as a substantial asset, it’s easier for business owners to receive credit from banks and other lenders. Also, you have the unique ability to both own your business premises and set up a pension plan, at the same time. This involves setting up an SIPP or Self Invested Pension Plan, allowing you to buy the property in question and rent it back to the business.
As with renting, there are downsides to buying your premises and the major drawback is money. Buying a commercial property requires substantial upfront investment, as much as a 40% deposit, which for many people is an impossible ask. You may also suffer due to potential interest rate rises, pushing up mortgage payments.
Responsibility is another factor to consider. As the owner of the property, any maintenance or ongoing repairs will fall at your feet, again incurring greater costs.
Many businesses will be faced with the decision of whether to rent or buy and it’s only with careful consideration and a bit of research that you can ensure you make the right call.
Anyone looking for further help, including expert financial advice and services, should contact the expert team at Salhan Accountants.
