Business Development

Business Premises: Should You Rent or Buy?

Oumesh Sauba | 11 March 2022 | 2 years ago

rent or buy

Finding the right base for your business is one of the most important decisions to make as a business owner. Many great companies have been started at the kitchen table and the home can be a very cost-effective base for your business in the early years. However, when your company starts to grow, or if you require more space to store products, you’ll need to find suitable business premises.

Deciding whether to rent or buy your commercial premises isn’t always straightforward. Your budget will be a large factor in the decision, but the choice of whether to buy or rent will also be influenced by the size and nature of your business. The advantages and disadvantages should be carefully considered before choosing which option is right for you.

Reasons to rent

Renting is a great option for new businesses which can’t reliably predict their revenue for the coming years. It means that if something happens or things don’t work out, you’re not left struggling with an expensive business mortgage to pay. On the other hand, if you see an immense period of business growth, the flexibility of renting means you can easily relocate to larger premises.  It’s also a way to protect your income as you can include rental costs in your business expenses. Doing this means they will be deducted from your profits, resulting in you paying less corporation tax. Other advantages to renting include:

  • Straightforward process – as with a residential property, you simply need a deposit and the cashflow to cover monthly rental payments
  • More choice – there are a wide range of commercial property options to suit businesses of all sizes, from hot desking, to small units, all the way up to industrial premises
  • Less responsibility – your landlord is responsible for maintenance and for resolving any issues that may arise, leaving you free to focus on running and growing your business.
Renting is not without its downsides. It’s worth bearing in mind that you may be unable to make changes to the property, or if your landlord does consent to alterations, these may be subject to restrictions. Also, rents can be increased over time so you may find yourself needing to relocate if suddenly faced with an unaffordably high increase.

Reasons to buy

While many business owners rent their premises, if your business is more established, you may want to buy a commercial property to have as your base. You can list the property as an asset on your balance sheet, meaning you can use it as security to raise capital. Plus, a commercial property is an investment which you could benefit from if it increases in value over time. Other advantages to buying include:

  • Greater cost benefits – mortgage payments can be fixed for up to five years, giving you peace of mind that payments will stay the same for far longer than can be guaranteed with a rental. You also have the ability to offset your interest payments as an expense against earnings which will lower your Corporation tax liability
  • Another income stream – as the property owner, you have the ability to sublet the premises to other businesses if you have space to spare or no longer require the premises for yourself
  • Increased flexibility – owning premises gives you the freedom and flexibility to create the space you need, from choosing the layout to adding your own branding and decor.
  • Pension security– Business owners can consider setting up a SIPP (Self Invested Pension Plan), and use this to purchase the property and rent it back to the business. This enables you to build your pension alongside owning your business premises. Always seek advice from a qualified Independent Financial Adviser if you want to find out more about setting up a SIPP.
There are a number of disadvantages to buying business premises however. Firstly, it’s very expensive, as a large deposit – up to 40% of the purchase price – could be required, as well as the potential impact of interest rate rises on monthly mortgage payments. You also become responsible for the upkeep of the property, meaning any structural repairs or ongoing maintenance costs will leave you out of pocket, affecting your business profitability. Furthermore, when you buy commercial premises you are tied to that property making it much harder to relocate should you need to upsize or downsize your business.

There are many factors to consider when it comes to renting or buying business premises. Don’t jump into making a decision before carefully reviewing your business needs and making a business plan. This should include a detailed review of your finances, income projections, your growth expectations and forward plans. It’s also worth seeking the advice of an accountant or tax adviser to see if there are any tax savings to be made. The right course of action depends entirely on your own business needs, but as the decision is largely a financial one, make sure you have a breakdown of costs for each option and that your business finances are in order so you can thoroughly assess the correct choice for you.

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