The question of whether a startup should buy or rent can be a tricky one. Both options have obvious advantages and disadvantages and there is no single answer. There are some ideas, though, that can be used as general guidelines.
For some businesses, the answer to this is an easy one. For example, a business might be historically connected with a specific location so it makes more sense to own a facility there. Other startups might profit from the fact that they can transfer quickly to another location and for them, renting makes more sense.
For the most part however, the answer is not so clear cut. This article should guide you in making the right decision for your startup business
It is also important to remember that it is not just the business premise that can either be bought or rented. Some equipment, materials, and services that are needed for running a business can now be rented.
Advantages of Buying for Startups
For a startup, owning the place where it conducts its business and the equipment and tools that it needs can bring in a lot of benefits.
The most obvious advantage is the fact that a location is an asset which has the potential to increase in value.
It is also useful to remember that the mortgage payment is lower than a monthly rent on the same kind of property. Because you will not be prone to monthly rent increases you can have more control on your monthly budget, specially if you have a fixed rate mortgage.
If the space that you own is larger than what you need, you can let others rent it out so you can recover some of your expenses.
Those are just some of the advantages that come with owning a place, but before you make a decision, you have to check the flipside.
Disadvantages of Buying a Business Premise
There’s always a downside to things and owning a business premise is nothing different. It does come with some disadvantages that you should be aware of.
One of the biggest disadvantages of buying a place that you should be aware of is the cost of the deposit. You would need a considerable amount for that which could be used for other purposes.
Once you own the place where your business is conducted, it would be a lot harder to relocate when the market and other trends dictate it. Transferring would be a long and complicated process then.
Owning a building would also mean that the startup would be the one responsible for its maintenance and cleaning. When something goes wrong with the facility, you will have no one turn to. That will be your responsibility and you will be the one to spend money to fix things.
The Renting/ Leasing Option
The main advantage of renting and leasing a business premise is that the initial cost is not as high as when a location is purchased. This allows a startup business to get going even with a small capital.
Flexibility is another thing that the renting of a business premises can provide. It means that your business is not going to be tied up with a certain location. This would make it easier for you to make decisions such as moving if business trends demands that.
Renting also allows you room for negotiation which can give you better terms. Getting a better deal is something you cannot do when you have already purchased a property.
If you rent the location of your business, it also means that you will not be affected at all by the changes in the value of the property. It can go up or down, but for as long as you have a deal for the place, the rent should still remain the same.
There is also no need for you to worry about the taxes of a property when you are renting. That can be one less thing to worry about for you.
Renting or Leasing Checklist
Many startups will choose renting or leasing a property over buying a place where they can setup their business. This is simply because renting is the only option that they can afford in the meantime.
If you believe that renting is going to be the better option for your business, then here is a checklist that you can use to make the right choices:
- Can the location be used for the kind of business that you have? Not all locations might be ideal for the sort of business that you will be running. You might need a place that has a lot of traffic for example.
- How long is the contract for renting the location? Sometimes, it is better to get a short contract so you can relocate if it does not work well, but a long period could lock you in on a really good deal.
- Will there be any reviews of the rent? When are those reviews to be scheduled? The review could mean that the rent would rise.
- If the location is too large for your needs, will you be allowed to sublet? Subletting is a common way of reducing the costs of the rent. if the place is too large for your business needs, it would be an advantage if you can sublet.
- Will you be the one responsible for repairs that might be needed in the premises during your stay? There would always be some kind of damage that would happen during your stay in location or some minor repairs would be needed. Avoid later confusion.
- Do you have to make an advance payment or a deposit? These can increase the initial costs for your company.
- Consider the price of the rent. It should be within your budget. This means that you have to set parameters for expenditures right from the start.
While renting and buying both have pros and cons to them, the former is better suited for some startups, simply because of its cost efficiency.
Alsco provides fully-managed rental services to over 48,000+ businesses around Australia. Its services include linen, workwear, mats and hygiene systems.