Tuesday, June 15, 2010

Build or Lease? Advice for small businesses.

One question that occurs quite often in business is - do we buy or do we lease?  There is no quick or easy answer tothis question.  In the same way there are very few times when one business will be in the same position as another.

It is my belief that as a business grows so do the complexities and the advantages and disadvantages of owning property come into their own as the business phases change.  Here's my very basic view on the purchasing of fixed assets -
  1. Establishment.  Keep it lean and mean.  I would tend to keep cash flow available rather than tieing up up those funds in assets. 
  2. Growth period.  Okay so maybe a few fixed assets like computers and the like would be handy now.  But I would still urge caution against tieing yourself into long term lease agreements or contracts.  Keep them short and sharp.  It may cost you moe in the short term but it will save you money in the long term.
  3. Expansion.  Invest in people.  Rent a premises and invest in stock and people.  The time for assets will come.  Now woud be a good time to look at leasing a vehicle.  (Don't buy).  Leasing a vehicle will allow you to keep up to date and all the servicing costs are already built into the price so there won't be any surprises in the need for repairs.
  4. Maturity.  This is the time to look at purchasing a small scale property.  Don't take on any grandiose building schemes or pans at this stage unless you get super good interest rates or you can rent out excess space that you don't require.
When you hit the fourth stage - it's time to call in the experts and strategise onhow you will take your business to the next level. 

In summary - keep cash available for you to use when you need it, invest in people before buildings, lease don't buy as much as possible.

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