Choosing premises is one of the biggest decisions many business owners and managers ever have to face, but few have much relevant experience to draw upon. For a new business with modest resources, finding new premises can be a daunting prospect.
However, all it takes is a thorough understanding of your business needs and careful consideration of a few important factors that will enable you to put together a plan of action.
There are three main issues to consider. The first is location. Proximity to customers, suppliers or competitors is vital to the success of many businesses. For others, however, location is much less critical. The second important consideration, of course, is type of premises. Guided by your business requirements, you need to decide how much space you need, what access or on-site services are required, and also the security, comfort and appearance of your premises. Finally, you need to decide whether to license, lease or buy.
Once you have answered all of the above and have established how much your business can afford to spend — your search can begin.
If your customers are based in a defined geographical area, it makes sense to locate your business where they can easily find and visit you. This is essential for retail businesses.
Decide if it is most suitable for your business to be close to competitors or have exclusivity in an area.
Consider if it is important to you to be close to specialist suppliers.
New towns and developments are often cheaper, but might not suit your business.
Prices are lower in areas with vacant property. But that vacant property might be a sign that the area is bad to do business in.
Setting up in certain locations may qualify you for grants or other financial incentives. Check with your local authority and business support organisation.
Can your customers and employees reach the premises easily?
Will you be able to get supplies and make deliveries easily?
Will you be able to recruit suitably skilled people locally?
Will the location meet employees’ needs for housing, schools, shopping and eating?
Do you need to be near a bank, post office or local parking?
Are there specific requirements that your business has that will play a part in choosing your location?
Your customer and suppliers will make important judgements about your business based on its location.
Think about the impression that visitors will form when they visit your premises.
If your business is office-based, you could consider a serviced office that offers immediate access to smart, fully equipped, flexible offices. Many also provide support services on demand.
Any premises must provide enough office, factory, storage and yard space for you to work effectively.
Think ahead, too — you might need additional space quite quickly if your business is successful. Is it possible to get additional space in your potential location if required?
You will need access but you should be clear who it is for and when it will be needed.
You will need adequate services, including power, phone lines, plumbing and drainage.
Does the work you do call for particular services (eg gas or three-phase power)?
Do you have plant or processes that need special ventilation or air conditioning?
Do you have special requirements for waste disposal and drainage?
The appearance and comfort offered by your premises must be appropriate to your business — for employees and visitors.
What are your requirements for light (natural and electric) and heat?
What facilities (eg WCs, a kitchen) will employees and visitors need?
Some premises can only be used for certain types of business activity. These activities are grouped into categories and permission is only given for certain categories to operate on each premises.
If your business makes noise, creates or processes waste, or handles food, you might need a licence, and there are often additional regulations you need to adhere to. Find out more from your business adviser.
Consider all the relevant factors.
An older building may look nice, but will the wiring and plumbing be adequate?
Will expansion or layout changes be possible?
Must your premises have special physical attributes (eg overhead clearance, upper-floor loading or reinforced foundations)?
Highlight any special or unusual needs. For example, waste collection.
It will be easier if this is covered by the property’s existing planning permission.
You, or your licensor, can usually terminate the arrangement at short notice.
You agree to occupy the premises for a fixed number of years.
You might be liable for the rent for the whole period of the lease, even if you vacate the premises early.
Established businesses with spare cash might buy their premises as an investment.
Simplicity — a licence is usually a simple contract which can be agreed quickly and without expensive solicitors’ fees.
Cost — some councils and Enterprise Agencies provide subsidised workshop units and business centre offices. You usually pay rent on a monthly basis.
Flexibility — as your needs change, you can usually take more or less space, or leave the premises, without being penalised.
All-inclusive — the licensor usually takes care of maintenance, rates, and most insurances, though the cost is sometimes recovered via a service charge.
Services — reception and secretarial services are often part of the package provided. There might be a separate service charge covering these and other facilities.
Lack of security — you have no legal right to stay in the premises, if the licensor has given you proper notice to leave. The licensor is also free to increase the license fee at the end of the licence period, when you might wish to renew the licence. As long as you are a good licensee, the licensor will usually wish to keep you.
Lack of choice — offices and workshop units are widely available, but the supply of other premises on licence is limited.
Lack of flexibility — practical or legal restrictions might stop you from altering the premises to meet your requirements. Nor is there much point in spending to improve premises you might soon leave.
Neighbours — other licensees can cause problems, and tend to change frequently in a small workshop or office scheme. Noise, dirt, smells and an image of amateurism can all reflect badly on your own business.
This provides stability and security.
For small start-up businesses, however, the pros and cons might be more finely balanced.
Choice — most business property is leased.
Security — you have a stable base, with the right to stay there for the length of the lease (usually three to 25 years).
Alterations — you can spend money on improving the property (usually subject to obtaining written consent from the landlord), knowing you will be staying.
Incentives — a landlord might offer incentives to take up a lease (eg a rent-free period).
Ongoing liabilities — as your business situation alters, you might need to move on. In most cases, a lease can be passed to a new tenant, but you might still be liable for rent and costs (including the legal costs for both sides) if the new tenant fails to pay up. In some cases, you might also be responsible for all repairs.
Fees and time — legal advice is essential.
Bad landlords — some fail to fulfil their side of the agreement. This may also happen with premises on a licence.
Extra restrictions — these might be written into the lease and could threaten your business (eg by hindering diversification).
Rent reviews — most leases allow the rent to be increased periodically (every three or five years), in line with market rents.
Entering into a lease is a serious move. It is essential to get solid advice from professionals before making such a commitment.
This cash could be better used as working capital or to fund expansion. You usually need cash for 30 per cent of the price and a commercial mortgage for the other 70 per cent.
Control — you own the freehold until you choose to sell the property.
Stability — with a fixed-rate mortgage, the schedule of mortgage repayments and interest is negotiated once and for all. There should be no large increases in your monthly outgoings (whereas rents can increase significantly).
Customised premises — you can alter and improve the premises as much as you like, to suit the needs of your business (subject to planning permission and building regulations).
Investment — in the long-term, the trend in property prices is usually upwards. If you buy the right property at the right time, you could make a good profit.
Image — owning the freehold is usually a sign of a strong, well-established firm.
Security — owning your premises is always a definite advantage when negotiating with your bank manager.
Risk — property values can sometimes go down. Properties might also be costly to maintain.
Fees and time — finding and buying the right property can be time-consuming. It involves paying legal costs, too.
Responsibilities — you have to manage, maintain and repair the property yourself.
Buying premises is a huge commitment. It is essential to get solid advice from professionals before making such an important step.
It will give you clarity in your search and help you to cut down on the number of unsuitable properties you see.
You could be introduced by a friend or colleague to a company prepared to sub-let space, or find someone whose office you can share.
Advice from contacts is usually free.
Get to know whether local newspapers have days when they have more property pages.
For example, LEPs can refer you to local sources of information.
Ask for the property or economic development departments, especially if you are seeking licensed offices or workshops.
The council may have a property register, or even run a subsidised business centre.
Many estate agents have specialist commercial divisions. Some list available properties on their websites.
The landlord or seller generally pays agents’ fees, unless otherwise agreed.
At your first (free) meeting, the agent can explain the different options and costs.
Give agents your detailed property specification.
Select the most suitable properties and discuss them over the phone. Annual cost per square foot (including rent, rates and service charges) is a useful basis for comparison.
Decide which properties to visit.
All owners and landlords must provide an Energy Performance Certificate (EPC) when they sell or let commercial premises. An EPC provides information on the energy efficiency of a building and likely energy costs.