Time to move on? Top tips for small businesses looking to relocate - PropertyBlawg

Time to move on? Top tips for small businesses looking to relocate

by Bluefin Professions on November 11, 2014

A growing property market is generally a strong indicator that the UK economy is heading in the right direction. What’s good news for investors, however, may not necessarily be ideal for small business owners. When falling vacancy rates and strong returns hit the headlines, it shows that it’s no longer a buyer’s market – which means small businesses are faced with even greater challenges when it’s time to relocate.

Here are some of the key issues entrepreneurs and startups need to consider when sourcing and choosing a new property…

Keep your business goals at the forefront…

When a business needs to relocate, it’s usually for one of two reasons: either a current lease or licence has expired with no viable option to extend, or else expansion means the business has – or is about to outgrow the current premises. In either case, choice of new premises cannot be separated from the organisation’s overall strategy.

Do not leave this until the last minute – otherwise there is a risk of ‘settling’ for an option that fails to tick all the right boxes. Especially if the premises are going to be used for industrial or specialist commercial purposes, careful thought has to be given to the exact specifications. Remember that floor area is only part of the story: the precise layout of that floor space determines whether you are going to be able to use the premises in the way your business requires. For instance, are you looking for a mixed office/warehouse facility? Your growth predictions may indicate a requirement for 50% increased storage capacity – but do you really require the same increase in office space? Rarely is it as simple as simply multiplying your existing floor space in line with your growth predictions.

If you are looking solely for office space, avoid the temptation to look for the most fashionable address you can afford – just for the sake of it. Remember that kudos only counts if your customers actually care about where you are based. If your online sales are predicted to grow exponentially but footfall is virtually non-existent, do you really need to be based in the city centre? Conversely, if your business involves face-to-face contact with clients, how are those clients going to react to having to travel to an out of town Business Park to see you?

Affordability: more than just the purchase price

On top of lease or mortgage repayments, allowance also has to be made for a range of other necessary outgoings – including insurance, service charges, utilities and maintenance. Business rates are a particular sore point for many small businesses. Rate bills are currently based on 2008 property values (i.e. the peak of the market). There is currently a huge backlog of applications from businesses looking to appeal their tax bill and the level of repayments is expected to cost the Government £4.2 billion.

Licence, lease or freehold?

For a startup especially, the prospect of not being tied down to a property has certain advantages – especially if there is a risk of having to go back to the drawing board with your business plan (think in terms of ‘pop-up’ shops as a typical example). A licence is a short-term arrangement, usually less than six months – and very often relates to shared premises. The downside of this flexibility is that the arrangement can be terminated at short notice without security of tenure.

With a lease arrangement, many small businesses find they are able to meet that fine balance between flexibility and security. Growth predictions are rarely set in stone. Subject to notice requirements, a lease, (especially a short lease) enables you to move on without having to source a buyer. If your physical resources consist solely of basic office materials, this flexibility can be especially welcome. With specialist industrial or high-tech equipment however, there may be installation costs to consider. If each time you move, you incur major disruption and installation costs, a greater degree of permanence may be desirable.

The barrier to outright ownership, on the other hand, is of course, capital. Even if, in theory, you have the capital available, could that cash be put to better (and more profitable) use if reinvested in the business? The decision also rests on looking carefully at the commercial property market and rental market in your desired area.

The danger of getting less than you bargained for

In some areas of business, due diligence is desirable: when choosing new premises, it is essential. Now is not the time to cut corners in terms of your legal and tax position – and least of all when it comes to investigating the physical state of the property. Do not skimp on relying on the bare minimum of information. By getting a comprehensive survey from an expert covered by professional indemnity insurance for surveyors, you can sleep easy in the knowledge that all areas are covered and any issues requiring further investigation will be identified.

Plan your move carefully – and ensure you choose the right premises for the right reasons.

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