Pros and Cons of Buying a Business Premises
As your retail business grows, you may decide to add brick-and-mortar assets to your portfolio. This usually comes in the form of buying your own property. While it may seem like a no-brainer to think that you won’t be paying rent to a landlord, there are also some other considerations to make. Below, we discuss the advantages and disadvantages of buying a business premises.
Disadvantages of Buying a Business Premises
The elephant in the room is the deposit. Property is not cheap in any situation, and quality retail property will come at a premium meaning you will need a large deposit. This money could be used elsewhere in the business, either to grow it through marketing, advertising or by investing in new equipment. Make sure you have this cash to spare and that it will be a better investment than any other strategy.
Also, be sure that the area you are buying is right for you. Selling commercial property is notoriously difficult. If the time comes for you to leave and go elsewhere, then you will saddled with a building you may not want. Rental agreements are much easier to terminate.
For smaller retail ventures, many businesses also become the primary residence of the owner. It may come with a flat or maisonette above. In these cases, be aware that if the business runs into difficulties the house is part of this. You may find it easier to stop repossession of a main residence if it is a personal asset and not one of the business. In this case, homes can be sold quickly to avoid the mark on a credit history and can even be bought in cash in as little as seven days.
Even if the business does do well, a dip in the property’s value will decrease capital. Therefore, you are more beholden to fluctuations in the market. You may also see yourself suffering from rising interest rates should you have a variable-rate mortgage.
Advantages of Buying Business Property
When buying retail property instead of renting, you do get back a degree of control. Assuming you have a fixed-rate mortgage, you then know the exact amount coming out of the accounts for a given period. This is not true of rental agreements, where landlords may suddenly decide to raise the price. The payment may also be less than the rental you were paying before, saving your business money.
The space also becomes your own. You can alter or change it as you see fit, without authorisation from a landlord. In some cases you may be able to sublet spare space, bringing in more revenue. You may even be able to extend it.
Remember that in the United Kingdom, any interest payments on a property are tax deductible. This means you can claim it back at the end of the year.
These are just a few of some of the pros and cons. Make sure the initial investment is worth it, then find a place that is right for you. Buying is not for every retail business so don’t feel like it is a must. However, it can save money and enhance your business profile.
