While all the emphasis is on starting up an online business these days, it is easy to forget that many businesses start in bricks and mortar. This can be more satisfying than establishing an online enterprise because you literally have to roll up your sleeves and get stuck in! You don’t have to limit yourself to the local market either as you could combine a shop premises with an online business. If Amazon can do it with their store in Seattle then so can you.
Establishing a physical business does present some additional challenges. As well as the usual dilemmas of what you will call your business and what your target market will be, you also have to select some premises.
Should you buy or rent business premises?
Most startups will elect to rent some premises because they simply don’t have the financial resources to buy. Commercial rental contracts usually place the responsibility for repairs and maintenance on the tenant – that’s you. You will probably also have to pay for new signs to erected outside the store.
If you do beg, steal or borrow the money to buy the business building there are some advantages. You will have complete flexibility over the management of the building and can erect whatever signs and carry out whatever internal alterations you want. You obviously have to check that these are safe and will not compromise the structure of the building.
Some commercial premises make a great financial investment. You own it and so when it goes up in value you could actually make a profit by selling it and moving to another building. Of course, it is possible that it will go down in value in the short term but, as a long-term investment, commercial property is usually a safe bet. Even if the premises do not go up in value, you could choose to let them out to another business if your business does not succeed. This, in itself, is a passive income stream. It’s nice to know that you cannot be thrown out at any time, especially just when your business is starting to make some money! Finally, there can be no unexpected rent rises. You can choose a fixed term mortgage and fix your monthly repayments for several years.
On the other hand, there are some disadvantages. If you are setting up your new enterprise on an extremely tight budget, this will not be the best option for you as it will tie up a lot of your capital. This is money that would be put to better use in other areas of your business.
Whilst it is true that you will probably make money by investing in property, it takes a long time to do so. In the meantime, you will have to ride out the ups and downs of the property market. And if you are starting with a greenfield or brownfield site, you may want to call in a service such as Axiom Geomatics for the surveying.
As the building owner, you are responsible for all of the maintenance and for complying with all the health and safety legislation including fire regulations. If you need to carry out high-level repairs using Auslift equipment you will have to bear the whole cost of this. If business rates apply in your area then you will have to pay these too.
Costs relating to buying a business premises
When you are setting out your business plan to buy a business property there are certain costs that must be factored in. They are:
- Professional fees. You cannot buy a property on your own. You will need professional legal and financial advice and you will have to pay for it. You will also have to pay a surveyor to carry out a structural report of the property.
- All countries will require you to pay some form of tax when your purchase a property but the names of the tax will vary. It is usually charged as a percentage of the cost of the property.
- Renovation or alterations. The property will not be ready for you to launch your business. There will be alterations and possibly some renovations for you to carry out.
Unfortunately, the financial outlay does not end here as there will be on-going costs. These will include:
- Business rates. This is an annual charge for the property and rates vary with the location of your business. In general terms, rates are higher in busier and more popular areas.
- Services for your business. Things like waste collection are often free for domestic properties but you will have to pay a charge for a business premises. You may also have to pay for a car parking space or spaces if there are any.
- Business insurance. You will need to pay to insure the premises if you own it and the contents if it is rented.
- Repairs and maintenance. Every property has running costs. There will be gas, electricity and water and sewage costs. You may need to pay for security in some type of premises.
- Commercial mortgage payments or rent. There will be ongoing rental costs or the mortgage repayment costs if you have purchased it.
What to look for in a business property
Buying a business property is a little more complicated that buying a house. If you are going to rely on passing trade, you need to be located in a busy area. Think about the demographic of the customers that you want to attract. Where do they hang out? You also need to think about security matters and access.
If customers need to come to your business by car then you need to be able to provide parking for them. Does the look of the building fit your brand image?
Once you have selected a few properties that you like the look of you will need to carefully consider the structural condition of the properties. Try to look to the future. Will the property grow with your business? Can you imagine your business operating from the property in 5 or even 10 years’ time? If the answer is yes, then you may have found the property for you.
