Why Small Businesses Should Consider Buying Property Rather than Renting
It's guest post week again and I'm glad it is because this post is coming to you while I'm in beautiful Puerto Vallarta, Mexico. While I'm busy trying to get a tan, we'll hear from the folks over at MTX Contracts about when a business owner should consider buying instead of renting the property s/he uses for the business. Here's the post:
There are many dilemmas that the small business owner will struggle with. Assets are important to any business, with 'bricks and mortar' being one asset, one investment and one struggle that many ponder – should they buy business premises or lease?
There are pros and cons to both. Ask business consultants or a letting agent which option is best, and the answers will often conflict.
Each small business is unique. You will be in a different financial position to others, and your preferences will vary too. With this in mind, you should consider the benefits of buying a property over renting by applying them to your circumstances and that of your business.
Benefits of owning a small business buying property Just like owning a domestic property, there are benefits that can potentially have a positive impact on your small business and downsides that could cause trouble.
Asset appreciation – assets are long term investments that can increase in value. Unless the economy is particularly rocky or completely falls apart, buying a property will typically offer a return on your investment in the long term if you maintain the property. This gives your business an asset against which you could borrow, if needed.
Fixed overhead costs – along with your payroll (if you have one), a mortgage is one of the highest fixed overhead costs you will meet every month. You will, of course, have to meet these monthly payments but if your order book is good, as you make payments you are investing back in to your business.
Potential extra income – as you own the building, providing your insurers agree and you have all the right advice, you could sublet part of your building if it is too big for your needs. This can bring in welcome extra revenue, which may cover the cost of your business mortgage each month.
Affordable premises – alongside traditional constructions, there are also more affordable business premises coming to the market in the shape of pre-fabricated or modular buildings. Medical modular construction is one branch of modular design and build that has surged in recent months to accommodate growing demands on healthcare providers. It could be an option for you too.
Is buying or investing in a business premises right for you? It's a big question and one that should be answered by analyzing your current situation before you take the leap from leasing to buying.
How healthy is your cashflow? – as a small business owner, your cashflow (or lack of) can keep you awake at night. If this is the case, renting a property is the ideal solution as you have rental payments to meet once a month but with buying a building, the norm is to place a hefty deposit to secure it, followed by mortgage payments. Look at your cashflow projections before committing to investing in a property.
Is the property suitable for the long term? – your business will grow and shrink over the years. You need to be practical about the building – can it grow with you or will your business soon outgrow it? Owning a property makes it less disposable; you could sell quickly or it could take years and, if you are not in the position to buy a second premises at the same time as paying a mortgage on the other property, you are tied into an expensive conundrum.
Is it in the right location? – just like buying a home, geography is an important consideration. Is the property in the right location for your business? It may be a great price but if it isolates you from the high street, important in retail, or if deliveries will be difficult etc., it is not the right move. Does it have sufficient customer and/or staff parking? What other businesses are close by? What are the benefits of moving your business to that area? Only when you have considered the answers to these questions should you make a serious offer.
How will you service the additional responsibilities? – maintenance, security, upkeep, decoration, and other management issues will be yours to deal with, from a blocked toilet to a broken window. When you rent a property, the landlord will deal with most of these issues. But when it is your own place, you must ensure the health and safety of you and your staff team – and .that means responding quickly when there are problems? How will you do that? What additional costs are involved?
How much and how fast will your business grow? – as your business evolves, how much will your staff numbers increase? One of the biggest issues you could face is not having enough space or enough space that can be used flexibly. However, there is a solution to this and that is to tap into the growing trend of workers working from home. With cloud computing and the like making remote working and communications easier, it may be that your business premises becomes the hub to which your remote workers are connected.
Buying a business premises is an individual decision, based on the viability of the business now and in the future. Which is the right decision for you?