Should Your Small Business Buy or Lease Commercial Real Estate?

For most businesses, having a physical location to meet, work and operate in is essential to the success of the business. One of the first steps in acquiring property for a small business is the decision to buy or lease office space. There is no right or wrong answer here as every business faces their own set of unique factors and budgets to make this decision with.

Whether your business is stable and established or still quite green, leasing or buying an office space will require that you consult an advisor who specializes in bookkeeping services because they can help you determine how much you can afford to spend on property as well as the cash available you have to use for scouting locations with. Below are a few more matters to consider when making your decision to buy or lease real estate for your business:

New Businesses:

If you are a small business who is new to the game and still expanding in terms of location and staff, then it is in your best interest to lease commercial real estate. Your goal should be to find a place that is in a good location, functional for the business, and, most importantly, available at a reasonable rate. As a new company, your budget will be smaller to work with, and you do not want to sink all of your available cash into high payments on a lease.

When you have found a great place to lease, make sure that the terms of your lease are flexible. Month to month payments are the easiest terms to work with offered, but annual renewal is another great option. Whatever you may decide, make sure that your terms do not exceed more than 5 years. This allows you freedom to look into larger properties as you continue to grow and establish your business.

If your small business is just taking off and you have the luxury of working with a larger budget, then you may consider buying instead of leasing. You should only do this if you have accumulated the amount of quality staff that can effectively deliver results based on the business coming in. If this is not the case, then leasing is still your best option.

Established Businesses:

Once you have an established and successful business, purchasing real estate becomes a more practical option. Pending that you are not searching to expand your staff, this is a great choice to minimize the hassle in finding a new place in the future. By purchasing property, the payments will eventually cease which is much unlike a lease where payments are continuous and property ownership is never granted to the lessee.

The purchase of property is an investment; so you must take into account your risk tolerance and financial commitments. Consult a financial advisor to be able to come to a decision on whether to purchase or lease and the price range that you can afford.

Remember, property whether purchased or leased is an investment. Take some time to look at various locations and then make a list of pros and cons for each area. After you have done this, pick the place that you feel fits your company best as well as your customers and employees.

And start saving early! This gives you plenty of time to accrue the down payment necessary to purchase the building and helps build a good relationship with your banker, so they are more likely to be supportive when it comes time to ask for financing. If you decide not to purchase, then you’ll have a strong savings established to help start making payments on a lease.

Bert Doerhoff is owner and founder of Accubiz, a firm providing accounting services out of Jefferson City, Missouri. Accubiz specializes in small business accounting, bookkeeping service, and wealth management. Prior to opening his own firm, Doerhoff worked for Peat, Marwich, Mitchell & Co, which is currently known as KPMG. Frequently, he speaks at state level and national conferences on various business management topics.