05 / 06 / 14

Leasing vs. Owning (Storefronts)

When starting or moving a business, your choice of storefront will impact everything from your immediate finances to the growth potential of your business. Depending on your current money situation and the outlook of your industry, you should consider the different impacts of leasing and owning a property.

Pros of Leasing

Leasing can give you access to the ideal location without requiring a huge down payment. As a small business owner, you probably place a lot of value on the flexibility and particular financial incentives to lease:

  • Zero or small down payment
  • Flexibility to invest in development, marketing, or other areas
  • Smaller commitment to location and space
  • Can make a more desirable location affordable
  • Lease payments may be tax deductible

Cons of Leasing

Like cars and homes, renting rather than owning does have its downsides. You should consider the consequences of dealing with a lease rather than owning your own space:

  • Monthly payments will continue forever and likely increase annually
  • Anxiety over landlord not renewing the lease
  • Landlord has control over many changes and improvements

Pros of Owning

Property ownership brings long-term financial gains and complete control over your storefront or office space throughout your time there. If you have the cash for a down payment on a location you like, your business and your bottom line can benefit from a number of perks and benefits of buying your location outright:

  • Mortgage payments will end when the purchase is complete
  • Equity will accumulate
  • Freedom to make changes and improvements as you wish
  • Can help establish your brand and image

Cons of Owning

Given the sizable commitment you must make to own?both financially and in terms of choosing a long-term location?take a look at the downsides of ownership. If you aren?t in love with a location and comfortably positioned for the cash outlay, think twice about the disadvantages of owning a storefront:

  • Large down payment required
  • Location you can afford may not be ideal
  • Only certain expenses are tax deductible
  • Ties up cash you could use to improve business

Making the Decision:?Leasing or Owning

Ultimately, leasing and owning can feel like an apples to oranges comparison. Take the time to prepare a complete short- and long-term look at the financial ramifications for each, using real examples of available properties. If one side comes out on top for monthly expenditures, think about what you could do with the savings. Would even a meager $100 per month toward advertising or other expenses help propel your business forward? Or would the ideal storefront space make a greater impact?

Think about market fluctuations within your industry. If you have lean months every year, your property expenses will need to be manageable through those times. If you foresee a downturn in your industry in the coming decade or two, you might want to avoid bigger commitments. On the other hand, an extremely steady business could mean ownership will trump leasing over time.

You should also consider how your business is dependent upon location. Location is so crucial for many retail industries that you may need to go with whatever option is available in spot you need. Even office spaces without walk-in customers should consider location. For example, it may be beneficial to your image to position yourself among the other tech firms in your town?s business section rather than choosing a random location elsewhere.

Be realistic about your finances and credit rating, and consider asking a third party to help assess the situation. An objective point of view can help identify the location and terms best suited to your business.

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