How to Evaluate Us (and our competitors)
By Brent B. Johnson
As the owner of a construction company, I've shoveled through my
share of business challenges. Few are more confounding than the
issue of whether to physically expand, and even more important,
how to make it happen.
Should you lease a larger office space, buy an existing building
or build a facility? I help clients hammer out the pros and cons
of these decisions every day. Here are some tips to help you evaluate
your choices.
Lease It
The most practical and affordable option is to lease space. To
figure out how much space you need, start with the assumption that
private offices are typically 120 to 200 square feet each, workstations
are 80 square feet and conference rooms are 200 to 375 square feet.
The advantages to leasing space include the ability to sign a short-term
or long-term lease with an option to renew. Further, it doesn't
tie up needed capital. You can take advantage of the building's
common areas such as a conference room and fitness facility, and
if the structure is large enough, you may be able to move within
the building as your business expands. Your landlord takes care
of making the space fit your needs and handles ownership responsibilities
such as property taxes, insurance and building maintenance. If you
partner with a real estate developer/landlord, you can work to have
a structure "built to suit" your needs and lease space
in that building. This can offer the best of both worlds.
The disadvantages of leasing, however, include the frustrating
and time-consuming task of finding the right amount of space in
exactly the right location. You might also lose your lease to a
higher bidder or building sell-out, and you're at the mercy of the
landlord in setting rent and restrictions on building use.
Buy It
Buying a building offers the assurance that you get what you see.
You can immediately evaluate the building's benefits verses cost.
You'll also receive the benefits of depreciation, interest, investment
tax credit to shelter income, and appreciation of value enabling
you to profitably sell, trade or refinance the building in the future.
If you run a family-owned business, owning a building is an investment
for the future.
However, the space may have to be remodeled to fit your needs
and that can translate into much higher costs than the purchase
price alone. It may not be in the exact location you desire, could
have structural problems and may not be wired for computers or optimum
energy efficiency. Your company will experience an immediate cash
drain while you're renovating the building and still occupying your
current space. You'll also need to handle the ownership issues of
utilities, insurance, property taxes and ongoing maintenance such
as cleaning, snow removal and lawn care.
Build It
Building a new space requires a hard hat but definitely not a hard
head. You have to be flexible in deadlines, costs and handling the
stress. A good construction manager can act as your advisor, helping
coordinate subcontractors and alleviating many of the headaches.
You can include your wish list of amenities such as high-speed Internet
access, sophisticated heating and cooling systems and a contemporary
layout. Current low interest rates can provide a good incentive
to build but can also signal a downturn in the economy and in your
potential business.
If that downturn happens, owning a building means you'll still
be forced to continue paying the fixed costs of building ownership
and management. Similar to buying a building, you'll have many upfront
expenses and will usually be required to put at least 20-25% down
in order to begin work; however, an SBA loan can help reduce that
figure to 10%. You'll have to deal with financing, finding the best
location, and permit and zoning requirements, which can take several
months to finalize. You'll also have ownership issues of taxes,
insurance and maintenance.
Pay Dirt
Before you make the decision on how to physically grow your business,
you'll need to evaluate your long-term and short-term objectives
as well as considering the immediate and future financial requirements.
To help nail down the right expansion choice, seek advice from real
estate and construction professionals.
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