I’ve outgrown my business premises
What keeps you awake at night? Read Complete Commercial Finance’s guides to some of the common challenges that many businesses face.
Many small businesses start out as the passion of one person or a small group of people, and it’s not unusual that the migration from kitchen table or home office to rented space marks a milestone as things get off the ground. However, depending on the type of business or rate of growth, the need for a flexible working space that can be scaled up accordingly can prompt a move. Even if your business is static in the number of employees it requires or the amount of space it needs to operate, for some business owners purchasing a commercial premises can create stability and provide a long-term investment.
What do I need to think about when choosing a commercial building?
Moving a business can be expensive and it’s important to ensure that a new space will work for the company for the long-term. Think about the building in terms of how your team will work effectively, whether you need a meeting space, private offices for senior members of the team, room for equipment or storage, along with the ‘fit’ of a new location. Health and safety regulations mean that there must be a minimum 11 cubic metres per person, with a maximum of three of these counted as room height – you can review regulations at the HSE website.
It may be tempting to open a second office or branch of your company at a separate site, but this often creates new challenges in terms of managing staff or splitting your time between the two. If you are tempted to take on a larger or second site, carefully examine the terms of the lease agreement you are being offered – extracting yourself from a lease before the end of the agreement can be costly and time-consuming, which can distract you from focusing on your business.
Should I buy a commercial premises?
One solution might be to purchase a commercial premises to suit your business needs – read our commercial mortgages 101 guide here. A commercial property can include office space, retail units, leisure & tourism destinations (restaurants, pubs, hotels, cinemas, gyms) industrial warehouses or factories, a school or car park, and it may be possible to sub-let part of a property to tenants to help offset costs. As with any property purchase, it’s important to find a location which meets your needs and is likely to retain its value. Consider whether the property would appeal to other business owners if you no longer needed it for your own company.
Search for commercial properties at Rightmove, Zoopla and PrimeLocation for available premises and work with an estate agent which is experienced in commercial property to understand the market value of both the initial purchase price and likely rental value of the premises. Research other companies in the immediate area to establish if the site is a good one for businesses. Are there easy transport links and parking for staff and visitors?
Along with the legal costs of purchasing a commercial premises, there may be other expenses to consider, such as planning permission to adapt or extend the building to suit your needs, adding or improving utilities and broadband, energy costs and ensuring suitable security. Investigate business rates and any other costs attached to the site including business insurance.
Should I rent a commercial premises?
If your business requires a greater degree of flexibility – perhaps you have secured a contract for a fixed period? – renting commercial space may be a better option. With this option, you will not need to consider the versatility of a commercial building beyond your own business’ needs and the long-term value of the property is immaterial to your own requirements.
However, a rental property is rarely perfect in set-up for your own operations and a building may require modification to suit your business’ needs. If you need to adapt a rental unit or office, one option is to take a loan rather than using your company’s cash reserves. An unsecured loan can help to stagger the costs of an initial set-up with minimal impact to a business’ finances and cashflow.
If a move requires new equipment or machinery, asset finance can provide funding – with a wide variety of hire purchase and leasing options including specialist finance, asset finance is an effective way to gear up your business without impacting reserves or cashflow. Read our asset finance 101 guide here.
What are the pros and cons of buying a commercial building?
In broad terms, a lease is regarded as a liability for a business, while a property is an asset.
In summary, buying commercial property for your business means that you are in control of the space you occupy and not subject to a landlord’s decisions regarding rent or changes to the building.
With current low interest rates, it is possible that the repayments of a commercial mortgage may be less than paying rent, with some lenders offering fixed rates for up to ten years. Based on property investment historically, a commercial building will hopefully rise in value over the long-term. Additionally, the interest on your commercial mortgage is currently tax deductible.
However, as with any property purchase, an investment in a commercial property will require a significant deposit – usually around 30 per cent of the purchase price, in addition to stamp duty, valuation and legal fees – which may tie up much of your business reserves. It’s also important to understand that, just as with residential property, the value of a commercial building can rise or fall and is a long-term investment.
See more Cashflow / Commercial mortgages articles here
