The time has come, where you can finally move your business out of your home and to its own physical location. Of course the next step would be to find the perfect place to run your business, but to help you choose the best place you will have to decide if you would rather buy or lease the space. The question on which is better will really depend on your capital and a number of other factors, as well as your personal preference.
In our professional opinion, we believe it is best for many startup businesses to lease their space rather than buying for a number of reasons. First, if you are a startup, you are most likely still unsure of exactly how much you are going to make in revenue; this leaves your business free from the high costs of paying off a mortgage and monthly interest on your principle payment, which if your credit is not good can be quite costly. Second, if you do not own the building then you do not have to worry about paying property taxes, security, and insurance on top of a mortgage and monthly interest; this again can be quite costly to any business, especially a startup company.
Also as a new business, you will continue to grow at a more rapid pace than more established businesses and you will eventually need more space. If you had purchased an office or building, than you would have to either come up with the capital to add on to the building or take on yet another loan; both can be quite expensive and could put your business in a financial hardship. It would be much more cost effective for you to be able to leave the space you are renting and rent a larger space. Another cost that can come with buying, is if something breaks or needs to be fixed than , just like a house, you responsible to pay for fixing it and if your business lacks savings, than it will have to come out from other areas such as marketing or even giving yourself a paycheck. Lastly, most prime real-estate areas that will bring in a lot of traffic can be way out of budget, sometimes in the millions. Leasing will be a more affordable option for your business to be in a more heavily populated area compared to if you had bought a property in a more affordable, but less desirable area.
There are some advantages to buying, which would again vary on your specific business. In buying your business space, you will have more stability in your fixed expenses as your mortgage will be the same, where rent can be raised when the landlord would like to raise it. There is also more stability for those businesses who are in manufacturing, construction, etc. who have equipment that cannot be moved; in buying your space, you will not have to worry about buying new equipment when having to rent out a new space. In owning your own business space, you will also be able to use the building as collateral, or an asset, that you can use in order to secure credit toward any debt or equity financing. With buying a property, you also have the chance that if it is an up and coming area, the value of the building may increase as the surrounding area grows.
Buying or leasing for your business is a decision that should be made after sitting with an accountant and going over your finances. An experienced accountant will be able to let you know which is the better financial option for you and your business.