So you have an established business and you’re thinking of putting down firmer roots now you’ve left your incubator or your garage. The next big thing you have to consider is whether you should find a longer-term lease on an office or just take the plunge and buy some space.
Of course in the early years, your home, your garden office or even a cubicle in that incubator was just what you needed to keep costs down, but if your enterprise has grown and you need more bodies and more footage, you need to find new premises.
If you’re at the crossroads of whether to buy or carry on renting, this is what you need to weigh up:
You will have to part with some capital to buy your new premises, as well as take on a commercial mortgage. This will eat into your profits for a long time and this may impact upon how much working capita you have for new projects or equipment.
On the upside, however, you’re building up your assets as you pay off the mortgage, rather than making your landlord rich. Remember though, as with any investment, the value of a property can go down as well as go up. That said, it’s unusual to see depreciation in the office space Kingston, St James and other London areas boasts.
Your cash flow
Here’s where renting comes in – rents are fairly stable over several years, whereas your mortgage is more subject to the changes in interest rates. You might also have to pay buildings insurance, as well as premium-rated utility bills, extra Stamp Duty, business rates and so on (although many commercial leases demand this as well).
Biting off more than you can chew
If you buy a property, you need to make sure beforehand that you’ll get planning permission for the changes you may need to make. You also need to look for things like asbestos, as this can prove to be an expensive oversight.
If you’re renting, it’s not your problem if a wall falls down – you just call the landlord or the management company and get on with salvaging your stock. If you own, you need to salvage your stock and repair the wall – which fell on someone’s Aston Martin…
You also need to get the windows cleaned, replace carpets as they wear out – for ever.
If you grow, or if you shrink, your existing premises might become unsuitable. If you’re renting, you wait out the rest of your lease and move, but if you own the place, you have to find a buyer, maybe lose a few thousand, buy a new place and pay Stamp Duty. It’s a big undertaking.
The good news is that you can, as an owner, extend, or rent out a corner or two to start-ups. Tenants can’t do this. Another consideration is that leased premises often have a clause which states the premises must be restored to their original state. If you’ve been there long-term, this can cost a packet.