Do businesses stand to benefit from purchasing or renting property?
Making a decision relating to business property can have a huge impact on the future as it often ties up a large portion of finances.
These judgements cannot be rushed and businesses need to ensure that they have the necessary plans and finances in place to cover such a move.
Circumstances relating to buying or renting will vary by company, which is why it is important to weigh up the positives and negatives that opting for one over the other would bring.
Buying commercial property
Buying a property is huge initial outlay so cash flow management is a vital part of the process.
Questions need to be asked as to whether the investment is justified and if the finances used could be better spent elsewhere – such as on efforts to boost sales or on new equipment for example.
It also means that a firm has a fixed asset which limits flexibility in the long term, meaning a firm should only really look to buy if they intend to stay in the same location for some time.
In certain industries, the prospect of rapid changes in the market could mean purchasing property is not a viable option.
The time needed to buy a commercial property can also be lengthy, so efforts are needed to ensure that this doesn’t have a negative impact on any business practices.
There are positives to come from property purchase too, as the building could gain value should the commercial property market improve, while it also reflects well as a valuable asset on a company’s balance sheet.
Potential tax benefits could also come from owning a property while the majority of costs after the initial outlay will be fixed – there is no need to budget for rents or rental increases for example.
Renting commercial property
An alternative option for companies is to rent commercial property and this is a very popular option as it provides plenty of flexibility.
It frees up working capital and means investment can be made into business development rather than into property.
For a business looking to expand this should mean more finances for marketing and sales activity, while also providing some money as a safety net should something go wrong.
Bosses can also focus more on the running of the business when they rent, as less time is taken up dealing with issues relating to property purchase.
But renting is not without its cons, as costs can vary which can make money management a difficult process to deal with.
Rents and other charges could increase and a business will often have little control over this, while the money used to pay the rent has no long term benefits for the business, only for the landlord they are renting from.
The key for businesses considering either option is to keep a tight hold over their finances, as this should ultimately mean they are not left facing company administration or other forms of financial control should things not work out as planned.
By Phil Smith
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