Advivo Partner, Chris Morris, helps you weigh up the pros and cons of purchasing your business’s premises.
As an accountant and business advisor, I’ve guided numerous entrepreneurs through the maze of decisions that come with establishing and growing a business. One of the most significant choices many face is whether to buy or lease their business premises. While there’s no one-size-fits-all answer, weighing the pros and cons can help you make an informed decision.
Let’s start with the benefits of buying your business premises:
1. Equity Building
Purchasing property is a long-term investment. Instead of paying rent with no return, you’re investing in an asset that can potentially appreciate over time, building equity for your family or business.
2. Control and Flexibility
Owning your premises gives you greater control over the space. You can customise it to suit your specific business needs without seeking permission from a landlord. This flexibility can be invaluable as your business grows and evolves.
3. Tax Benefits
Purchasing commercial property often comes with tax advantages. You may be eligible for deductions on mortgage interest, property taxes, depreciation, and other expenses associated with owning the property, potentially reducing your overall tax burden.
4. Stability and Predictability
With a fixed-rate mortgage, you have predictable monthly payments, providing stability for your business finances. Unlike leasing, where landlords can increase rents or decide not to renew leases, owning your premises offers greater certainty in your occupancy costs.
However, buying your business premises also has its downsides:
1. Financial Commitment
Purchasing property requires a significant upfront investment. You’ll need to consider down payments, closing costs, and ongoing maintenance expenses. This can strain your business’s finances, particularly if you’re just starting or prone to experiencing cash flow challenges.
2. Lack of Flexibility
Owning property ties you down to a specific location. If your business needs change or market conditions shift, selling or relocating can be time-consuming and costly. Leasing can offer more flexibility to adapt to evolving circumstances.
3. Responsibility for Maintenance and Repairs
As a property owner, you’re responsible for maintenance, repairs, and upgrades. These costs can add up over time and may require unexpected expenditures, impacting your business’s bottom line.
4. Market Risks
The value of commercial real estate can fluctuate based on economic conditions, market trends, and local factors. While property values may appreciate over time, there’s also the risk of market downturns that could potentially affect the value of your investment.
Ultimately, the decision to buy your business premises depends on various factors, including your financial situation, long-term goals, and risk tolerance. It’s essential to conduct thorough research, consult with financial advisors, and weigh the pros and cons carefully before committing. Whether you choose to buy or lease, aligning your decision with your business’s needs and objectives is key to long-term success.
