At one time or another, the question of renting or buying a commercial building presents itself to any entrepreneur. Whether at the end of a lease, for expansion needs or when starting a new business, choosing between renting and buying your business premises is inevitable. This thinking is multi-faceted and the decision should never be taken lightly. Each option has its advantages, but also its disadvantages.
Here are some important factors to consider when making your choice:
your cash flow
Obviously, buying or renting a commercial building will have an impact on your budget. Depending on the financial situation of your business, the impact on the inflow and outflow of money may be significant. You must make your decision considering your current cash flow, but also your future plans.
The main benefit of commercial leasing is a much lower initial cost, although a deposit often needs to be made at the start of the lease. Plus, you avoid building maintenance and renovation expenses that are usually borne by the owner. If your business is young enough or growing rapidly, the amounts you save at the start of a lease can easily be invested in corporate resources or kept as a safety cushion.
However, a commercial lease can also cause the rental price to rise in the future. Buying necessarily involves a larger investment at the start of the project, but the monthly payments are less likely to fluctuate over the years. If your finances are stable, buying is often a good investment in the longevity of your business. Also, depending on the layout of the building and your needs, unoccupied spaces can easily be rented out to other companies. This gives you the financial freedom to grow, buy new equipment, and hire employees. However, an owner should never forget to budget for a safety cushion in the event of a major repair to the building.
the location of the commercial building
Depending on the type of business, the location of the commercial building can make it shine or sidelined. When the business is well established locally, the clientele and the accessibility of the building are important factors.
Renting your commercial building usually allows you to choose from a greater number of locations. This allows you to strategically position your business to reach your target audience. In addition, moving and settling in are generally faster when renting than buying. However, a lease has an expiry date. If you want to stay on your premises, you will certainly have to renegotiate it with the owner.
On the other hand, buying your commercial building means no lease and complete control over the building. Buying is also a better long-term solution, as it will be easier for you to establish your business’s credibility and strengthen its identity.
Here are some factors that indicate that the location is ideal and that you should consider buying:
- Your sales should increase considerably, because the building is located in an area with good pedestrian traffic or with easy access by car.
- You reduce the production costs of your company because your main suppliers are located nearby.
- The location is advantageous for your employees.
the Level of freedom
Purchase and rental obviously do not give the same rights to the layout and facilities of the building. Renting usually doesn’t incur maintenance costs, but it also means you don’t choose when repairs and renovations are due. Often, the owner will listen to your needs and do the necessary work for your business, but still has the final say. If your facilities are inadequate, it can slow the growth of your business.
For young companies and those that are constantly evolving, leasing implies better financial flexibility and the possibility of adaptation. On the other hand, if your income is stable, buying allows you to design a building in your image. You have the final say on renovations to keep your business performing. Plus, if you plan to grow in the next few years, it will be easier to expand and adapt a building you own.
The creation of value
Depending on your business situation, value will not be created in the same way. Renting out your commercial building will make it easier to invest in improving your equipment and making your business more efficient. For start-ups, this solution is ideal for improving their facilities and turnover before investing in the purchase of their own premises. Even though it takes a good amount of money to develop a company without necessarily having a large turnover, buying a building can quickly add to the financial burden on new businesses. In addition, leasing makes it easy to diversify your investments to grow your business.
However, buying a commercial building can lead to long-term value creation since it is an investment that will increase the overall value of your business. Indeed, if you strategically choose the location of your building, the value of the land and the commercial building will add to the value of your business.
Choosing between renting or buying a commercial building is never an easy task. Take the time to weigh the pros and cons and consider all the factors mentioned in this article. If necessary, refer to the following BDC article which discusses the subject in detail and do not hesitate to consult subject matter experts.