Setting up an office is a major step in the launch or expansion of any business – for one thing, it’s visible proof that your initiative is well past the planning stage and is actually up and running.
But remember that any decisions you make about the office facility itself, such as whether to rent or buy, will have important implications for how your business will be able to develop in the future. So here’s a look at some things you should consider when making this finely balanced choice.
The rental option
If yours is a new business, or a company enjoying rapid growth, then an office rental could be exactly what you need. Renting is always a popular option, so you should find plenty of properties available. In addition, you won’t need to make a large financial investment – which can be extremely advantageous if you are a start-up, or otherwise at a phase in your development when budgets are tight.
Should your business need a prime location to maximise its appeal, then here too, renting provides an affordable means of securing an upmarket presence in an area where you perhaps could not afford to buy.
Above all, renting office space gives you flexibility: you don’t have to make a long-term, bricks and mortar commitment. That allows your business to stay agile and able to rapidly adapt to new market conditions as the need arises – which could make the difference between success and failure in some sectors.
With renting you automatically surrender some control over your fixed costs. So even if your rent is cheap now, it’s only ever going to move in one direction – and rarely at moments which are convenient for you.
Apart from the uncertainty of a rental contract, the rent you pay out is lost to the business forever. There will be no equity gains. Furthermore, your leasing arrangements will be drafted to protect your landlord’s property rights, which in effect means your business plans will be subject to certain restrictions over which you have no control.
The purchase option
Provided you can afford the costs, purchasing a business property is always a sound investment. You may perhaps forfeit a certain amount of flexibility, but in return, a mortgage contract will give greater financial stability and control over your property costs.
In terms of business development, you will have much more freedom to improve and/or expand when the time comes. And if you have more space than you need for the moment, you can always rent it out at a profit for the time being. Later, if you decide to move elsewhere, you may even be able to afford to rent out the whole premises, thus bringing in even more income.
As with any property purchase, buying office premises means finding a significant deposit. And in addition, it can often take time to find, buy and move into a suitable office.
Another important feature is your ongoing maintenance and repairs commitment – as the owner of the property, you will have to prioritise and fund these tasks to protect your investment. And if you need to sell your property in the future, the return you realise on your investment will be governed by prevailing market conditions at that time.
The purchase process
Securing a commercial mortgage becomes a lot easier if you can provide the ‘ideal’ combination of a suitable property and a prospective borrower with a good credit history as well as a proven record of profitable trading in an industry with a promising future.
Business lenders will apply robust lending criteria and, as a minimum, you will be expected to provide: detailed evidence of your business assets and liabilities; bank statements confirming your financial standing; accurate cash-flow projections and evidence of rigorous business planning.
In such circumstances, it makes sense to seek advice from professionals who understand your business requirements, and who will be able to help you to present your lending application in the most favourable light.