Over the past 5 years, India’s SME sector has grown by leaps and bounds. While this is great for the economy and the country as a whole, it does pose some quandaries for the small businesses themselves.
One such quandary is whether to buy or lease office space.
There is no easy or black/white answer to this very legitimate question. However, an analysis of the respective pros and cons can make the decision-making process easier.
Not sure what these pros and cons are? That’s what this article is for!
So if you are a small business owner trying to decide whether you should buy or lease office space, read on!
BUYING OFFICE SPACE
| PROS | CONS |
| Tax deductions: The costs of owning a commercial space can provide some tax deductions. You can also claim depreciation. | Upfront costs/big financial commitment: You may have to make a large down payment plus account for property, appraisal and maintenance costs. |
| Fixed costs: A long-term mortgage means clear, fixed costs for your business, which makes business planning easier | Lack of flexibility: If your business grows, the space may become inadequate. |
| Additional income: If you can rent out extra space, you get another source of income. | Maintenance and insurance costs: You will be responsible for all maintenance costs. You will have to purchase property insurance as well. |
| Equity build-up: The property’s value will increase over time. You can use it as future collateral to apply for loans. |
LEASING OFFICE SPACE
| PROS | CONS |
| Low financial commitment: You can utilise the money not tied up in real estate to respond to market opportunities | Variable costs: You may be responsible for the costs of maintenance and upkeep, which can vary. You may also be subject to annual rent increases. |
| Prime property: You can rent in an area with a good location and reputable image | No Equity: When you rent, you don’t own the property. In effect, you are funding someone else’s retirement with your funds. |
| Greater flexibility: You can move out when your business grows or if you find a place with lower rent. | Broker fees: If you found the place through a broker, you may be required to pay either a one-time fee or an annual fee (for the duration of the lease). |
| Accessories: The rent for a leased space may include furniture, a working kitchen/pantry area and other accessories. | At the mercy of someone else: The landlord may impose rules which may affect your company. They may not examine any issues you face immediately. |
| Tax deductions: When you rent commercial property, the monthly rent payments may be tax-deductible as a business expense. |
As already mentioned at the start of this article, making a decision on whether to buy or lease a space is not easy for most small business owners.
Your decision would depend on a number of factors which your financial planner or accountant may be able to clarify for you. We hope this article helps you make the right decision!
0 Comments