Not sure whether to lease or buy your business premises? Take a look at the pros and cons of each option.
Establishing a company comes with many decisions early on, with one of the biggest being whether you rent or buy your business space. Settle on the smartest bet for your business and its long-term goals by considering these issues.
Pro: An Appreciating Asset
One of the advantages of buying your business premises is that it’s an asset that appreciates over time. If you are a business owner seeking an additional source of income to grow your business, purchasing property can provide the means to do this.
Meanwhile, having access to equity allows you to use the property as a guarantee when forming deals with potential clients and suppliers.
What’s more, owning a commercial property gives you access to tax advantages and deductions you would not otherwise receive as a renter.
Con: Upfront Costs
Buying a property will cost you far more upfront than if you decide to rent, so it’s important to have an appropriate amount of capital before taking this route. Ensure you budget for deposit and appraisal costs plus possible office fit-out expenses depending on the needs of your company.
You will also need to make sure your business has the money to meet the ongoing repair and maintenance costs that come with owning a property.
Did you know that as a small business owner you may be able to purchase your business premises via your SMSF? Read about this and other options.
Pro: Staying Agile
Renting is a good option for business owners who cannot yet predict their company’s growth over the next five to 10 years. If your business undergoes rapid growth, the flexibility of renting means you can easily move office spaces to suit your changing needs.
Renting can also offer a greater choice of property spaces and desirable locations for your business if it is still establishing its image.
Meanwhile, shared office spaces are a good option for startups and growing businesses that want to work alongside like-minded companies.
Con: Less Control and Equity
The main downsides of leasing a space are the variable costs, missing out on growing equity and having little control over the premises. As a renter, you will be subject to annual rent increases while essentially contributing to the landlord’s equity rather than building your own asset.
Meanwhile, if the owner decides to sell the property you may have to move quickly, causing unneeded expense and disruption to the business.
Whether you buy or rent, it’s important to properly understand what is best for your business. A rapidly growing startup would probably not be best suited to buying a premises, whereas a corporate might want to take advantage of buying in an affordable market, for example.