How to Determine How Much You Can Afford for Business Premises


How much you can afford to spend is, of course, a major item in your checklist. Your ability to pay for premises will play a key role in determining the kind of premises you should be looking for. Try expressing your likely property costs as a proportion of your expected turnover and you will clarify how sensitive your business is to differences in accommodation costs. This will help to indicate whether you can afford to pay a little extra for more inviting surroundings. On this, as on all important financial questions, you should consult your accountant and seek good advice, particularly if you are contemplating buying a property. If you will need to borrow money get a preliminary indication from banks and financial institutions on how much they might be prepared to lend you.

In practice renting is the usual pattern for small firms. Rent charges, particularly on small premises, are variable and you can encounter large price differences for premises of broadly similar size and quality. It is extremely important to search around and get a good feel for your local market before making any final decisions. In this way you will be able to gauge what is a reasonable rental for the kind of property you are considering.

Afford Business Premises

The way in which prices are quoted can vary considerably. Normally only rents are quoted; occasionally the rateable value will also be given. It is important to note that this is not the actual rates payable — these will depend on the local authority’s rate in the pound. If you are considering premises with associated access to secretarial, cleaning and other services, it is advisable to find out whether these items are included in the price of the premises. If they are, find out, if possible, how much of the rent is in fact a fee for these additional services. There is a tendency for some developers to overcharge for them. Also make sure that the rent quoted is a standard price and not an introductory offer. In many parts of the country, particularly in private sector developments, rents are increasingly negotiable. Reductions of 20 and 25 per cent on quoted rates are not unheard of, while some landlords are offering initial rent-free periods. In this latter case, make sure that you are not paying for this concession with a higher overall rental during the full period of the lease.

Rents are usually expressed as a price per square foot per annum. It may help if you translate such statistics into costs per week or month since many small businesses find this is a more immediate and meaningful figure.

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About the Author: Marie Mayle is a contributor to the MegaHowTo team, writer, and entrepreneur based in California USA. She holds a degree in Business Administration. She loves to write about business and finance issues and how to tackle them.

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