Finding the right premises is one of the most crucial decisions when starting or growing your business.
Many firms are successfully started from home – that’s certainly the most cost effective place to base your business in the early years. But as you grow, or if you have a business which needs a lot of space early on, you will need to find premises.
Here are the main points to consider while weighing up the pros and cons of renting versus buying:
Capital
To buy premises, you will need to sink some capital into the building, and probably take out a commercial mortgage as well. This may affect the profitability of your business for some time, and restrict your ability to find or borrow capital for new projects.
On the plus side, you are investing in a long-term asset for the business, whereas with rent you are investing in someone else’s long-term asset! Remember that the value of property investments can go down as well as up, so don’t bet the business on a building.
Cash flow
Renting will give you greater control over your cash flow. Rents tend to be fixed, whereas mortgage payments will be affected by interest rate rises. Owners will have to pay for extra buildings insurance. For all businesses, there are other costs to consider, including utility bills, business rates and stamp duty (sometimes tenants have to pay this on commercial leases).
Risk
When buying a property, ensure you will be able to get planning permission for any changes you’d like to make. It’s also worth checking if the building has asbestos – if it does you will have an expensive bill to remove it.
Responsibility
As a leaseholder, it’s not your problem if the roof blows off one morning. As the owner it is – and you’ll have to deal with it while you also try to protect your business from damage.
Try to imagine all the day-to-day things you’ll have to deal with as the owner… if toilets can get blocked, they will, and you’ll have to spend valuable time dealing with them.
Flexibility
As your business develops, will your premises continue to be suitable? Not a problem if you’re renting; just see out your lease and move to bigger premises. For owners it means selling up, or finding a tenant and taking out another mortgage elsewhere.
The flip side is that owners can do virtually whatever they like within their own buildings, such as creating extra space. That may remove the need for a move. And it’s an option that may not be open to tenants.
Often lease agreements state the premises must be put back to the original state when they are vacated – that could mean thousands of pounds of improvement work you have done has to be ripped out.
For more help read;
- Pitfalls you need to avoid when getting new business premises
- Renting business premises – commercial leases pitfalls to watch out for
- Leased or serviced office space – which is the best fit for your business?
Finally, here are some general tips from business owners with decades of experience in commercial property:
Tips for renters:
Opt for short-term leases
You never know what’s around the corner, so in your first few years shorter leases are better. It may mean you pay a little more, but one day you may appreciate the ability to move quickly.
Check how rent is reviewed
If you’re going to be facing a possible increase each year, it’s better to know about it from day one.
Negotiate lower rent & better terms
Don’t accept the first rental figure without haggling. And if the price won’t drop, ask the landlord to throw in free extras, such as a lick of paint, a comprehensive clean of the building or free signage.
Tips for buyers:
Buy property in growth areas
If the government has announced a town to be a growth area, there’s likely to be initiatives to attract new jobs. Which means more employers who will need business premises. That could have a positive effect on the price of modern business properties. But be aware of being stuck with a dilapidated building in an unfashionable part of town.
Don’t buy the first property you see
Just as with home hunting, you should view a number of premises, and consider how their size, location and proximity to amenities will affect your business and its staff.
More help on business premises
For more on business premises, try some of our other guides;
- The workaholic’s guide to successfully working from home
- How to find a serviced office to suit your business
- How to create an inspiring and productive office space
- Capital Allowances – A review of the various schemes available for businesses
- Which types of insurance must your business have?
- What to do if disaster strikes your business premises and you need to make an insurance claim
More on starting and running your own business
ByteStart is packed with help and tips on all aspects of starting and running a small business. Check out some of our most popular guides;
Starting Up
- 5 things you must do when you go self employed
- 10 advantages running your business as a limited company has over being a sole trader
- How to set up a limited company
- How to choose the best online accounting software for your business
- 15 Questions to ask when hiring an accountant for your new business
Leading a business
- How to be a leader rather than a manager
- Developing your startup’s greatest asset – YOU
- The Founder’s dilemma – Managing the transformation from start-up to growth business
- 6 common leadership traps to avoid in your new business
- Why the best leaders do less
Going for growth
- 5 Steps to kick-starting growth in your business
- How finding a great mentor could help you to grow, and your business to flourish
- The 3 issues you’ll need to overcome if you want your start-up to reach £1m turnover
- How reverse mentorship can help drive fresh ideas, develop staff and help your business succeed
- Barriers to growth – how to identify them and how to overcome them
Funding your business
- How to maximise your chances of securing a small business loan
- A Guide to ‘Alternative Finance’ – the new funding options for startups and small businesses
- Finding finance for your new business – funding advice for start-ups
- How peer-to-peer lending offers businesses a new funding option
- What to do when the bank says “NO”!
Promoting your business
- Making your small business a BIG hit online – A Digital marketing guide for small business owners
- How to create business cards that make a big impression
- The “Magic 10” Tips on networking – how the experts build great networks
- A Practical guide to Content Marketing for small business owners and start-ups
- 10 Top tips for small businesses starting out with social media
Hiring and managing employees
- Becoming an employer – Your responsibilities when you hire staff
- Dismissing a member of staff – what you need to do to stay on the right side of the law
- Health & Safety compliance for small businesses – where do you start?
- Flexible working rights for all employees – what small businesses need to know
- Employers liability insurance – if you employ anybody you are legally required to have cover
Legal issues
- Which types of insurance must your business have?
- Becoming an employer – Your responsibilities when you hire staff
- Health & Safety compliance for small businesses – where do you start?
- A Guide to the National Living Wage for small business owners
- Why it’s vital you have clear ‘Terms & Conditions’ for your business
