Making the Decision to Rent or Buy Office Space
The importance of having a home base for your small business goes without saying. However, how do you decide whether to rent or buy an office?
Making the decision to rent or buy office space should be based on several factors. Unfortunately, many business owners do not investigate their options and ask the right questions before making their decision. Just like choosing whether to rent or buy a home, there are important financial implications to consider.
At the end of the day, your decision should boil down to which option will promote a healthy financial situation for your small business, both in the short and long-term.
Renting an Office Space
Small business owners often jump at the option to rent. The short-term benefits are quite enticing, and for certain industries, renting can be a beneficial solution to the rent or buy question.
Renting does not require a downpayment. There is no upfront financial burden on your small business in order to have a professional space to conduct your business dealings.
Whether your business is growing quickly, downsizing, or completely unpredictable, renting makes it possible to move from office to office with ease based on your small business needs at any given time.
Landlords often look after some of the upkeep and maintenance for rented office space. This allows you to focus on your business without having to worry about unexpected building issues that could potentially be costly or time consuming to fix.
Though there are many short-term benefits to renting out office space, make sure you are aware of negative situations that may arise as time goes by.
Renting is not a reliable situation. You risk having to relocate your small business from place to place. Depending on your industry, changing your location can have a detrimental effect on your business. Not to mention, moving is expensive and time consuming.
Make sure not to assume that your landlord will look after all the maintenance and repairs for your office space. Unlike residential rental agreements, commercial tenants are often responsible for a large portion of office space upkeep.
Renting is not a long-term investment. The money you spend on your monthly payments is being payed to your landlord, and essentially it becomes a financial loss.
Buying an Office Space
Similar to renting, buying an office comes with its own set of pros and cons. Buying is often reserved for established businesses that are looking for long-term financial benefits, but there are many reasons to buy an office.
Essentially, you have two businesses when you buy your own office space. You have both your operating business and a real estate business. Every mortgage payment you make is an investment into your own company. Oftentimes, your monthly mortgage is a similar amount compared to monthly rent fees. You might as well pay that amount into your own office space instead of a landlord.
As a property owner, you have complete control over your business’s growth and success. You don’t have a landlord limiting how you function in your office space.
Your office space is an asset. It can be used as leverage to receive loans to grow your small business.
There are a few considerations to make as a small business owner before diving into a long-term investment. The short-term matters too, and it is crucial not to loose focus on your business’ best interest.
The first, and most obvious deterrent for small business owners when it comes to purchasing an office is the dreaded downpayment. A large, upfront payment is a big financial cost.
Buying office space is a long-term commitment, so ensure that your small business has the resources to maintain this commitment.
Be careful to do extensive research on a piece of property before buying. Building defects can be hard to detect, but can be costly down the line.
Owning your own office space comes with added responsibilities. Make sure these additional tasks and costs do not distract you from cultivating the growth and financial health of your company.
The decision to rent or buy office space is entirely dependent on your small business.
Always consider how the different aspects of your small business will effect your decision. Based on the financial state of your company, the industry you operate in and the stage of growth your business is in, decide whether renting or buying will promote the healthiest financial situation for you and your company, both in the short and long-term.
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