Most startup companies begin as a remote team, meeting occasionally for business talks. But once the company starts growing, problems like lack of communication, inefficient business process, and poor employee performance will happen. The solution? Put your employees together in an office?
Finding an office is a huge leap towards the success of your business. You can easily address any productivity issues and improve your business model to cater your market. During this phase, the first question you ask to yourself: do I have to buy or rent an office?
To help you decide, look at the pros and cons of closing a lease contract versus signing a purchase agreement.
Buy a space for a long term business plan.
Buying your own office gives you a full control of the layout and adjustments you want in the space. This means, no need to ask the permission of the landlord for the renovation. Having your own property also keeps your overhead expenses, or the non-labor expenses fixed. This is because you won’t worry about annual rent increase, which landlords seems to abuse every year.
Based on the law, your business asset can be used to take annual depreciation deduction. It is the cost subtracted to the business tax if the principal taxpayer owns the place where the primary business activities are done. You can also use the interest in your mortgage loan to reduce your tax.
Owning the office lets you stay in one location for a long time. This means, you can establish stronger connection and trust with your clients. Even banks will consider your property to back up loans for business expansion.
The downside to buying an office
On the flip side, buying a home office is expensive. While you do not have landlords to annoy you, you are also left on your own to fix damages in office. Even if you lease parts of the company to generate income, your cash flow might not be enough to sustain the company. That is why many startups plan ahead and evaluate their business development phase first.
Rent an office for a more sustainable business
Startups have a very few employees that is why many business owners chose to rent a house or commercial space to build their office. Renting is a smart choice for these companies because it is flexible in terms of business development. If your company grows and needs to upgrade your office, you can easily relocate and look for better property. There is also a case of disgruntled employees, which can threat the security of your employees. You can relocate to a new office if situations get worse.
Compared to buying a house, renting is much affordable. You can also sublet to save money for the tenant fees. It has low cost maintenance because you can demand the landlord to fix damages and you may also deduct monthly rent expenditure to your tax as a business expense.
The downside to renting an office
Landlords on rented properties can be strict, so you cannot freely improve your office. They also ask for annual rent increase, which may overwhelm a small businesses. You may choose to find a new office, but constant relocation can affect the credibility of your business.
If you are a startup, signing for a short lease is a good move because you are not sure how long the company will last. You may check out rental homes from McGrath and other real estate to save time in finding the best property. But, if you think of the long term growth of your company, buying a property is a better investment.
There really is no exact way to know if you’re better with buying or renting. You simply have to evaluate the priorities of your startup company and decide according to your business goals.
