Building costs can be affected by where the building is in terms of urban, suburban or rural. Real estate that's in a "hot" or growing area will be more expensive than that in areas that are perceived to be less desirable. Space in a shopping center or mall tends to be more expensive than in a urban downtown--although this generalization may be oversimplified, as urban areas in places like New York City, Los Angeles, and Chicago are high in cost.
The simple factor of how much square footage you must have and what modifications must be done to the space in order to make the building appear prosperous. If you own your business location, you are free to make changes in the surroundings as you see fit.
You can set your operating hours to suit the needs of yourself and your customers, and you are able to stay in your location so long as its profitable for you.
A helpful exercise to do in looking at costs is a cash flow analysis. This is a document often required by banks as part of the business plan anyway. You can factor in such things as interest on the mortgage, tax deductions and other property related expenses under either scenario and make a dollars and sense decision.
Location
The obvious location information which is relative to your business, and the type of business you hold cannot be underestimated. You need to take into consideration such location factors as transportation to and from your business; symbiotic relationships between your business and that of your neighborhood. If your business is likely to need expansion room in the near future, that should be factored into your business office location planning.
The overall attraction of the proposed locations which must be considered. You should look at each of the location factors and determine whether they are an advantage or disadvantage and try to maximize the advantages. Is the proposed location basically foot traffic or auto traffic. Are all the amenities available in the building you're considering?
Factors like parking, traffic flow and who your neighbors are will all impact the cost of the building or space you've chosen. If you have a business that has many small items available that the customers need to see up close to enjoy, location the business in an area where there is no place to park would seem to be a sure way to limit the customer browsing.
Leasing for Small Business
For small businesses, leasing the office space is probably the preferred way to house the business. There are a number of advantages for leasing that are not apparent in the purchase of a building. First, you don't have the problem of being unable to sell a building that turns out to be unsuitable for your purposes. You can simply sublet the property and move on to another area.
You are not responsible for any of the repairs or maintenance type costs of the building, except if the lease specifically says so.
If you have a troubled credit situation, you will find it easier to lease a building than to purchase one. Small businesses often don't have the cash resources to purchase a building up front. Their resources need to go toward business establishment, marketing and inventory in most cases.
Before leasing or even beginning the search for suitable space, you should know exactly how much space you require and how long you are likely to be able to utilize the space you may find before your business plan will indicate larger space is suggested. You should have a firm idea of how much cost your budget will support so you won't waste your time looking at space that is beyond your budget.
You should know whether the lease rates will increase and how often. The expectation in many areas of the U.S. is that the basic rate will increase about 8% per year.
The Lease Agreement
The strongest recommendation regarding a lease before it is written is that it would be reviewed and approved by a real estate lawyer. You should personally make sure you have discussed such things as utility costs, particularly after hours utility costs, sometimes landlords get a cost reduction for utilities used in non-peak hours. If your lease costs are based on a variable utility rate, make sure that this is included in the writing of the lease.
Another thing to review is how the shared space with other tenants is distributed. Landlords sometimes provide large tenants a break in their costs of shared space or utilities, but make up the difference in cost be charging smaller space leaser higher costs.
Be sure to read all the fine print on the lease. It's important that you read and understand each clause. Things like allowing for normal wear and tear rather than stating you must leave the property exactly as you found it can be extremely expensive if you don't negotiate for the wording which will benefit you instead of the landlord.
You should also spell out whether or not you can sublet any part of the space. This clause can be very important if you don't need to use all the space originally or if you determine that you've outgrown the space sooner than expected. You will want to be able to sublet the space. This is especially important if the building which you are leasing changes ownership. Anything that is spelled out in your lease can be carried over to the new owner. Anything that is not specified in your lease can be changed by the new owners.
