Rent vs. Buy: The Small Business Dilemma
You started a small business, and now it’s growing. It’s time to move from the garage or that little corner in your basement. Now you must expand. There’s just one problem: You can’t decide if you should rent or buy office space, rent or buy equipment, or expand your staff. Renting and buying both have advantages and disadvantages. Thankfully, there are some general guidelines to help you make a decision.
Let’s explore three considerations that’ll help you determine if you should rent or buy.
Lease or Buy Your Headquarters
Choosing your headquarters is the most critical decision you’ll make, and it isn’t easy. In fact, the supply for commercial space is lagging behind demand. And to make the decision even more difficult, you have to decide if you’ll rent or buy. Think about factors like long-term commitments, deposits versus down payments, and tax deductions.
Buying is a long-term commitment, and it requires a down payment. Down payments can range from 20 percent to 25 percent. Then you need to consider if that location will support your long-term business goals. Will you purchase an existing brick and mortar or build your own? Also, consider costs like maintenance when you own commercial space. Unlike a rental property, you can’t call the landlord if your toilet is broken.
Leasing is a short-term commitment, and it’s flexible. Typically you sign a lease for six to 12 months and put down a refundable deposit. When the lease is up, you can decide if you want to move or stay.
Both leasing and buying offer tax deductions. If you buy your headquarters, you can get tax deductions for mortgage interest and property taxes paid. If you lease, your monthly payments are tax deductible as business expenses.
To Score or Not to Score Equipment
Whether you lease or buy equipment depends on the type of business you have and how often you’ll use it. For example, if you own a small restaurant and need chairs, it might make more sense to buy the chairs. On the flip side, if you own a warehouse and have 80-foot ceilings and need a light bulb changed, it makes more sense to rent heavy duty equipment like a boom lift.
You also need to consider the cost of equipment upkeep and whether you have in-house maintenance. If the answer is no and you buy equipment, then you would have to outsource for repairs.
Hire Employees vs. Use Contractors
Expanding your staff requires careful consideration. If you decide to hire employees, make sure your business is financially stable. You don’t want to find yourself laying people off. Depending on the type of business you have, using contractors or freelancers might be an option. For instance, if you have a market research company, hiring freelance marketing and public relations professional is ideal. Temporary services and interns may also be options.
While renting and buying both have pros and cons, you must decide what avenue works best for your company. Keep your long-term goals in mind so that you make the best business decision.