Entrepreneurs starting new businesses have a lot of difficult decisions to make. They have to select the entity type that they establish. They also have to choose a location where they operate. In addition to picking a region or a particular neighborhood where their business might thrive, entrepreneurs also have to select a commercial space zoned for the type of business they intend to run. They have the option of purchasing commercial property or renting space initially.
Is it typically better to purchase or buy commercial space when starting a new business?
There are benefits and drawbacks to each option
Buying commercial space turns an ongoing financial responsibility into an asset. Companies have to pay for space whether they pay on a bank loan or cover rent expenses. The space in which the company operates may become one of the most valuable assets owned by the business.
The entrepreneur doesn’t have to worry about a landlord restricting their use of the space or charging them unexpectedly high amounts for maintenance. On the other hand, they likely have to handle all maintenance and repair matters on their own. They also lock themselves into a specific location.
Renting allows more flexibility. If locals aren’t particularly receptive to their business concept, they can easily relocate without needing to list and sell commercial facilities. They can also rely on a landlord for certain repairs and maintenance in some cases.
Other times, commercial landlords may pass maintenance responsibilities to their business tenants. Renting can sometimes be more affordable than buying, especially if the tenant only needs a single office, rather than a commercial kitchen or a sprawling industrial complex.
Entrepreneurs making important decisions during the business formation process often need legal guidance and support. Analyzing a company’s purpose and five-year plan can help those starting a business choose whether to buy or rent space initially.