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 ******* 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!
Cynergi provides marketing and media services to help businesses gain knowledge and skills for growth and progress. Our services include Content Marketing, Social Media Marketing, Video Marketing and Corporate Gifting. To know more, contact us today:
- Phone: +91 9833837428
- Email: info@cynergi.org