When beginning a small business, the first asset to acquire will be adequate office space. Acquiring office space can be achieved by either leasing or buying, and there are advantages and disadvantages to both choices. An entrepreneur must consider both options and decide which one is better suited to the financial resources and commercial requirements of the small business.
Advantages of Leasing
The biggest financial windfall of leasing is that the landlord is financially responsible for any maintenance, repairs, or malfunctions occurring in the office or on the property. Lease payments and other rental expenses can be deducted from annual taxes which provides another financial windfall. Lastly, leasing a commercial property requires minimal investment up front. Purchasing a property can require a large down payment of up to 30% of the asking price while leasing will usually require first month’s rent and a deposit.
Disadvantages of Leasing
While there are few cons to leasing a commercial property, they can be detrimental in the long term. Leasing a commercial property makes the renter subject to yearly rent increases which cause operating costs to fluctuate and budgets to be rewritten. In addition, once the lease expires, it will have to be renegotiated and the terms of the new lease could be less favorable than the previous lease.
Advantages of Buying
The first benefit of owning your office space is being able to rent out unused sections of it to other entrepreneurs. This will provide an extra source of income that will help keep the business in the black during lean times. Owning an office space also affords certain tax deductions that will prove to be financially lucrative. Lastly, owning an office space by way of a mortgage helps to keep business costs fixed and allows for a reliable budget with consistent monthly expenses.
Disadvantages of Buying
One of the major cons of buying a commercial office space is that it does not provide adequate flexibility to grow as a business in physical terms. The office space is set in concrete and cannot provide extra offices or floors to accommodate the growth of a small business into a larger one. Additionally, purchasing an office space can be quite risky. It’s a gamble that the business will flourish and return the heavy investment which was placed on the commercial property as a down payment and any subsequent improvements or repairs performed after the purchase.