Choosing a Business Location

Location! Location! Location!

Deciding where to operate your new business is a crucial factor that can greatly effect your venture’s performance. When making this decision you must take into account the nature of your business and your available resources, and depending on these circumstances, you can choose to either work from home, lease commercial real estate, or purchase a commercial property. The following provides a brief look into each of these options as well as some points of consideration.

Working from Home

Working from home has several advantages including convenience and cost savings. But before you open your home office, her are a few things to consider:

  • What is the available space in your house? The size of your office will be determined by your available space. Do you have a spare room or a big walk-in closet? What about an attic, basement, or garage? Can you add on to your house? Even an unused corner of a room could serve as an office. Consider any area that can be renovated.

  • What kind of work do you do? This will effect what kind of equipment and furniture that you will choose. It will also help you to decide what the space should look like. Someone who works with graphics, for example, will need a space that can hold a desk and computer equipment, while an accountant would need to make sure there was room for file cabinets.

  • What is the law? Make sure that you are operating in accordance with the legal requirements for running a home business including permits, licenses, and local zoning laws. For more information, check out this guide from My Own Business and Business.gov for licensing information in your home state.

  • Who will use the space? Do you have any employees? Will customers or vendors be visiting you? This will also be a deciding factor regarding where the office will be and how it will be set up.

  • What is your budget? If you need to acquire any equipment or furniture, or if you are planning renovations, then you will need an influx of capital.

Getting a Commercial Lease

There are many benefits to leasing a property instead of buying it. First, you do not need to worry about securing a business mortgage or keeping a watchful eye on the property’s value. A lease also means more flexibility. Properties are generally leased for a period of up to 5 years. Once the lease is up, you are then free to move to another location. Finally, many leases also cover the repair and maintenance of the space.

One of the most important things small business owners can do is to clarify what they are looking for in a commercial real estate lease even before they actually reach the point of needing it. Here are some important things to consider:

  • What is your projected growth? The general rule of thumb here is to stay at least a year ahead of any projected expansion of workers, equipment, or inventory. Keep in mind that you need to plan for work stations, as well as increased traffic in common areas, such as the coffee room.

  • How will the space be used? The right space for your company will really depend on how the space will be used. Are your workers full-time, part-time, or do they telecommute? Do employees often meet with each other? Do customers come to the premises of your business? Do you need to make a lot of specific renovations? Layout and features. Including office furniture and amenities.

  • How important is location? For some businesses, especially those in the retail industry, location is everything. But for other businesses, location my not be as important. When deciding on a commercial property lease you need to consider how important is customer and employee convenience.

  • How long do you plan to stay in the area? The longer the stay, the more sure you need to be about the location. It should be noted that when it comes to commercial real estate, if you plan on staying in one place more then 10 years, you may want to consider buying a property as opposed to leasing.

  • Cash flow? Since as stated above, real estate costs represent a company’s the biggest overhead expense, you need to be in touch with the cash flow of your company.

Keep in mind that there are several types of real estate leases to choose from. Here is a short list of the major kinds of leases:

  • In a gross lease, the tenant pays a set amount of rent, while the landlord is responsible for the taxes, insurance and other costs associated with owning the property.

  • With a net lease, the tenant pays the rent in addition to some portion of the maintenance fees, insurance premiums, and other operating expenses.

  • A triple-net lease is typically, for a freestanding facility. Here, the tenant pays for all fees and operating expenses associated with the property.

  • In a shopping center lease, rent is based on the square footage of the space. The tenant  is usually also responsible for certain common charges and taxes as well as a percentage of the gross sales. The terms of such a lease generally include hours of operation and use of common areas. The landlord may also have the right to relocate the tenant.

  • With a ground lease, the tenant rents the facility as well as the grounds on which it stands. In this case, all improvements to the property revert back to the landowner at the end of the lease.

For more information on commercial real estate leases, check out the Center for Commercial Real Estate.

Buying Your Property

Though leasing may seem like an attractive option for many small businesses, there are several advantages to buying a property.

A company that is looking to stay in a specific location for more then 10 years should consider buying- especially if the location is particularly attractive, is selling at below market price, or is conducive to additions and renovations. Any additions or renovations will most like add value to the property. Thus even if the company ends up moving later on, it can capitalize on the higher market value.

Additionally, if the company does not currently need all the available space, it can sublet it to other companies. This income can then be used towards the mortgage.

The bottom line here is that if you find a particularly attractive piece of real estate, then you should consider buying if it suits the current and future needs of your business. Otherwise, you should opt for the flexibility of property leasing