Setting up a business involves a lot of decision-making. While most people focus on customers, products and pricing, one key decision you need to make is whether you choose to buy or rent your business premises.
There are pros and cons of either approach. But here are some of the key questions you need to ask yourself before you sign on any dotted lines.
What can I afford?
Just like buying a home, buying a commercial property requires a lot of cash. In fact, you generally need to put down a bigger deposit to buy a commercial property – often around 25-50% of the property’s value (plus stamp duty and often GST).
This could turn out to be a great investment if the market works for you. It could also work against you if the market drops and you need to sell to access that money. You also need to factor in the ongoing costs of building maintenance, council rates and other levies that you wouldn’t need to pay if you weren’t the property owner.
Renting is obviously much less of an upfront financial commitment – which can free up more cash to spend on your business. But the downside is you’re helping someone else pay off their mortgage. Likewise, if you invest in renovating your premises, you’re adding value for someone else.
How much space am I going to need (now and later)?
You need to think about the future growth of your business. Being the owner of your premises gives you more flexibility to reconfigure your existing premises (without having to ask your landlord for permission – more on that later). But it also means you’re ‘locked in’ to one site that may not suit you forever.
If you change your business model, shift your focus interstate or simply need a bigger premises, it’s much faster and less costly to make a move when you’re renting.
Am I OK with having a landlord?
One big downside of renting is you don’t have the freedom to make all of your own decisions. You generally have to ask your landlord for permission if you want to make changes to the floorplan, put in a skylight or even paint – which could hold you back from creating the workspace you really want.
Also, if your landlord decides to end your lease or sell the property, you may be forced to vacate the premises and find somewhere else at short notice. Or they may increase your rent each year to the point you can no longer afford to stay.
When you buy, you’re more in control of your own destiny.
Do I want to earn rewards points?
Many business owners are rapid accumulators of rewards points because of the ability to pay business bills on credit card.
While you can’t generally earn rewards points on mortgage repayments, you can use a third-party payment service like B2Bpay to pay your rent – and earn full credit card points (including Amex).
If you paid $240,000 per year in rent and other business expenses using B2Bpay, you could earn:
- 240,000 Qantas Points (or credit card points) every year, plus
- 2,400 Qantas Points for your business every year (or even more by paying B2Bpay Bonus Billers).
That’s enough points for 2 x return Business class flights from Sydney or Melbourne to London every year, including approximately $1,517 in taxes, fees and carrier charges.
If you’re renting and looking to boost your rewards points, join B2Bpay free below or click here to find out more.
So what’s the verdict – rent or buy?
Every business owner has their own pros and cons to weigh up, and a hairdresser will have very different requirements to a motor mechanic. The important thing is to do your homework so you can make a decision with confidence, then get on with running your business.