The space in which you house and operate your business is one major factor in whether or not your business is successful. What type of space is right for you? Start by understanding the options described here.
A home office can be a great place to start a business, especially if you provide a service. However, check with your local city or county government to make sure there aren’t restrictions on operating a business from your home. It’s also worth a call to your insurance agent, as many times personal property and homeowners insurance will not cover any damage to your home-based business. Finally, discuss your plan with a tax advisor, as home office space is treated as commercial real estate and must be depreciated over a long period of time. If you sell your home, you may be liable for additional taxes from the undepreciated part of the home office.
Leasing Commercial or Retail Space
Leasing commercial space may provide you with more flexibility than purchasing space. Many times, you can lease a small space to begin, and even make arrangements to share common facilities and support staff. In other cases, you may want to lease space in a single building or a single floor of a larger building.
Whichever type of leasing arrangement you consider, start by taking these steps:
- Anticipate your needs. Do you expect the business to grow quickly, and you will probably need space for expansion soon? Are you planning to stay as a small, one-person operation for the foreseeable future? Or do you desire a high-traffic location for a retail business, with a longer lease to ensure your returning customers can easily find you?
- Find out the current going rate for commercial space in your area. That way, you can better judge whether the rental terms offered by the owner are reasonable. If you know, for example, that rates are falling because of an oversupply of office space, you may be able to negotiate better terms.
- Consult with a real estate attorney to make sure the contract is going to meet your needs. An attorney can identify areas of concern that you may not have considered.
A leasing contract should include the following information:
- The amount of rent, including any planned increases (escalations) and the amount of a deposit or whether you can substitute a letter of credit from your bank
- When the lease begins and ends, and how you can renew it
- What services the rent includes, such as utilities
- Who is responsible for maintenance and repairs, taxes, or insurance
- A full description of the space and a list of any improvements the owner agrees to make
- Written confirmation of verbal information given to you, such as the estimated number of people coming to the shopping center, any restrictions for competing businesses, the approved zoning and uses, and whether the space complies with local, state, and federal requirements (such as the federal Americans with Disabilities Act)
- Whether you can sublease your space, and how either you or the owner may terminate the lease
Owning Commercial or Retail Space
In some cases you may find that it makes more sense to purchase your place of business. This is particularly true once your business becomes established and you have a good idea of what your expected growth will be.
- Purchasing options vary. For small businesses, for example, you may be able to purchase a “business condominium” similar to residential condominiums. Other businesses join together in a co-op to purchase space.
- Before purchasing commercial or retail space, be sure to speak with a real estate attorney. Purchasing business space is much different than purchasing a home; you need someone with expertise so that you can acquire the property with the best terms possible.