While property ownership is often the gold-standard goal of every business or practice for investment and business equity reasons, it is not always the right choice. For many businesses, commercial property leasing is a more attractive option.
Just Starting Out?
Building a successful business requires a tremendous commitment of both time and financial resources, which can leave little of either to devote to the purchase and upkeep of a commercial property. For this reason, a new business or a young business, still attempting to become established and profitable will find buying a commercial property to be a very uncertain choice.
Consider, for a moment, the expenses a new business is required to meet in order to become established. From equipment purchases to marketing, personnel to professional insurance, costs can quickly add up, leaving very little extra financial headroom to accommodate sudden or unexpected expenses.
The Flexibility of Leasing Options
In comparison, leased property carries very few of these expenses or liabilities, while giving you considerable financial flexibility that can play a key role in your success.
For instance, if you are a property owner and sudden disaster strikes – such as a burst water main at 3 a.m. – you are financially responsible for any repairs or renovations needed to deal with the resulting damages. In comparison, a tenant would bear none of this cost or responsibility.
Leasing also gives your practice considerably flexibility should you decide to relocate to a more desirable location. While breaking or ending a lease may be costly – your lease should include provisions to allow you to relocate at a minimal financial impact – it should far less costly than moving to a new location while still making payments on a location you are no longer using.
Due to the significant financial commitment of purchasing a commercial property, it is normally not something that should be undertaken by a new business.
Fortunes can change very quickly for a new business. A facility that you purchase today may very well be inadequate for your future needs or, even worse, may add an undue financial burden that can cripple your future growth potential.
Property purchase is best left to well-established businesses with the deep financial reserves needed to bear the burden of debt it will impose on the practice. Alternatively, a relatively new business with two or more partners who can jointly bear the financial burden may also consider property purchase.
However, for nearly all new businesses, leasing will offer the financial flexibility needed to flourish during those first lean years as the business builds.
You may also want to consider a lease-to-purchase option, which has the added benefit of allowing you to ‘lock down’ a property while working towards the day when you can purchase it.
NOTE: First and foremost, you should consult a professional financial advisor/planner who is familiar with your business when considering commercial property purchase or leasing.