The odds of a new business succeeding are often less than 50/50. Even if a new business does make it past its first year, there is no guarantee that it will last for another year or longer. However, it may not always be possible to merely lease equipment or office supplies. How should the owner of a young company decide whether to rent or buy?
What Are You Looking to Acquire?
There are some items that you may not be able to buy even if you wanted to. For instance, office space is usually leased to a company by the building’s landlord for most small and medium-sized companies, according to one Boise, ID real estate professional. However, if you were looking for supplies to fill that office with such as a computer or a phone system, you would usually buy those goods outright.
In some cases, an asset can either be purchased or leased depending on your needs. For instance, a company vehicle may be purchased outright as regular corporate transportation or leased for use as a perk for employees who perform well during the year.
How Much Are You Looking to Spend?
If your company is on a tight budget, it may be a good idea to look into renting over buying. For instance, if you need heavy machinery to help with the remodel of your existing store, it may be better to rent because it would cost less to have it for a few days as opposed to purchasing it outright.
The one exception to that rule would be if you could find a quality used product that met your needs and budget. In that scenario, it may be better to buy because the company now has an asset it can use for collateral or to sell when it needs to raise funds in the future.
The price per square foot of office space depends heavily on the location of the business. Prices can range from $1 per square foot per month in smaller or medium-sized cities, all the way up to $7 and beyond in New York City. This is why it’s important to decide on your location carefully, and compare apples-to-apples when viewing comparable properties.
How Long Do You Need the Asset For?
As a rule, you rent or lease the items that you only want or need for a short period of time. For instance, you may lease office space if you only plan to be there for a year or two. However, you might consider buying your own real estate if you plan to stay put for awhile.
There is no guarantee that any company will survive to see another day, week or year. Therefore, companies need to understand their own needs, financial resources and future goals when deciding whether renting or buying an asset is in its best interest. For most younger businesses, renting is usually best.