Location, location important for fledgling businesses

OF the many mistakes it is all too easy to make when starting up a new business, choosing the wrong premises can be among the most costly. At worst, it can bring the business down before it has got off the ground.

Mark Swallow, of RICS West Midlands and head of Knight Frank’s Birmingham office, explains the importance of making the right choices when selecting commercial premises.

“Nobody in the retail trade is in doubt that a shop in the wrong location – or even a shop in the right location, on the wrong terms – can spell doom for the business. But selection of premises can be equally important if you are running a manufacturing or distribution business, or even an office based professional services business.

“The old adage states that the most important thing in selecting property is location, location and location. While this is particularly true of the retail trade, it applies to other types of business as well. But even if you get the location right, there are plenty of other pitfalls along the way.

“Taking professional advice can avoid the most serious of these pitfalls. Chartered Surveyors are best placed to provide advice on property in business and can help you with all the issues you are likely to encounter, whether you are finding, occupying, altering, or vacating your premises.

“These pitfalls pose a particular threat to the new or young businesses. The problem for most new businesses is that they do not know how they are going to develop, or how rapidly. You may dream of starting with a workforce of four and building up to four hundred within five years.

“In fact, if you were a dotcom business launching around the end of the last millennium you might have planned to do it a lot faster than that, but we know what happened, in the event, to most of them.

“This uncertainty makes it particularly difficult to hit on premises that are both right for your immediate needs and also offer you the flexibility that you will need as your business expands. Take on premises that are too big for your immediate needs and you are saddling the business with unnecessary costs in the early stages. Take on premises that are too small and you may find that your expansion is constrained by lack of space in the existing building and very heavy costs if you try to move somewhere else.

 
“A business looking for new premises, whether it is a start-up or a mature concern, has a number of decisions to make right at the outset. First, it must choose between buying a building or finding premises that it will occupy as a tenant.

“Second, if you decide to follow the renting rather than the purchasing route, you face a further serious decision. For how long do you want to commit yourself? Taking a lease of premises is a serious business. A lease is a binding contract in law. Take a lease for ten years and you cannot simply walk away from it after three years if your premises prove unsuitable or your business fails to develop as you had expected. It may prove very expensive, in terms of time as well as of money, to extricate yourself from your commitment. There could be better solutions.

“The usual advice to an established business looking for new premises is: try to visualise the business in five years’ time. How do you expect it to have developed? What do you expect its space needs to be at that point? Then try to find a building that meets, or can be extended to meet, your requirements at least that far ahead. A new business should be asking itself the same questions.

“But it is not always so easy to come up with the answers. While selecting the right premises will always be a trade-off between security and flexibility, the new business therefore needs to err on the side of flexibility. Consider some of the pros and cons of the different property options, whether buying or leasing premises or occupying a building under licence.

“Whichever option you choose, make sure you really understand what you are getting into before you take the leap. Getting out can prove a lot more expensive than getting in.”