Setting up business - premises

Choose the right premises for your business

Choosing the right premises is a key business decision. You want premises that help you operate effectively, but without excessive costs. At the same time, you want to avoid being tied to premises that might not suit you in the future.

Different options suit different businesses. Working from home can be a good option, particularly if all you need is a small office space. Alternatively, you might choose to rent business premises, or even buy premises outright.

Your premises requirements

Drawing up a list of what you want from your premises is a good way to start your search. Key considerations may include:

• size and layout of the premises
• structure and appearance, both internally and externally
• any special structural requirements, such as high ceilings
• facilities and comfort for employees and visitors - eg lighting, toilets and kitchen facilities
• utilities, such as power and drainage, and any special requirements - eg three-phase electricity
• permission, including planning permission, to use the premises for your kind of business
• access and parking space - eg for deliveries or customers, including disabled customers
• whether you need the flexibility to alter or expand the premises
• whether the premises are suitable for your long-term needs or just for the short-term

At the same time, your choice of premises is limited by your budget. Depending on whether you rent or buy your premises, costs to factor in can include:

• initial purchase costs, including legal costs such as solicitor's fees
• initial alterations, fitting out and decoration
• any alterations required to meet building, health and safety and fire regulations
• ongoing rent and service charges
• business rates
• continuing maintenance and repairs
• buildings and content insurance

If your requirements are too specific, you may find that your choice of premises is very limited or you cannot afford them. It's worth thinking which requirements are essential and which are merely desirable, and prioritising them accordingly.

Choose the right location for your business premises

Choosing the right location can be something of a balancing act. Ideally, the location should be convenient for your customers, employees and suppliers - without being too expensive.

For shops and other retail businesses, location is of critical importance. Your location must attract customers.

If you rely on passing trade, you want to be in an area where enough people who are likely to want your product or service can see you. For employees, the best location will be easy to travel to. Good public transport links make it easier for employees who don't live within walking distance. Employees also tend to prefer working somewhere with good local facilities, such as shops.

You may want to be near suppliers for a quick, flexible service. Deliveries may be easier if there are good road or transport links.

You may prefer to avoid being too near your competitors, though clusters of similar businesses sometimes attract more customers. Your neighbours and your location also affect your image.

Location has a major impact on cost. If you need premises in a prime location, then the extra costs may be justified.

Renting business premises

Finding the right premises for your business is crucial if it is to be run effectively and make a profit.

A key decision is whether to buy or rent property. Renting ties up less capital which can be invested in the business instead. It can also give you flexibility to relocate easily if your business needs dictate.

The type of premises you rent will be partly dictated by the type of business you are running. The amount you can afford - taking into account extra costs such as business and utility rates, and building insurance - will also be a deciding factor.

The advantages of renting

Buying business premises is a big step and it's important to carefully consider whether renting is a better option. Renting provides flexibility for your business. You are not locked into property ownership and you can agree on the length of the rental agreement that you require according to your business needs. It may also be possible to remove yourself from the rental agreement, which is useful if you want to relocate.

Financially, renting can make good business sense. It ties up less capital than buying, freeing up cash that could be used elsewhere in the business.
You are not exposed to interest rate rises, except indirectly at rent reviews or if your rent is index-linked. There is also less potential for unexpected financial shocks - unless you wish to assign your lease to someone else, falls in property value will not affect you. Also, you will have no concerns about capital gains tax unless you decide to sell your lease for a premium.

You may have less responsibility for the building if you rent rather than buy. You will generally have to look after repairs and maintenance inside the building but external maintenance is more likely to be the responsibility of the landlord, particularly in multi-occupancy premises, though you may have to pay a service charge.

Renting can also give you space for negotiation. You or your agent can negotiate any aspect of the lease, either at the start or if you want to renew it after the lease ends. Always check to see how rent is reviewed before you sign the lease.

Finding the right premises

It is essential to match your premises to your business needs. There are a number of ways to search for them. You could consider:

• advertising signs outside the premises
• local newspapers
• the Internet
• your local council - through the Economic Development Unit
• your local Business Link
• estate agents
• trade associations - if an existing member is retiring or selling up

Another good way to find suitable premises is through appointing a commercial agent. You can find one in the Yellow Pages, via a trade association or a local Chamber of Commerce.

Commercial agents have expertise about the property market in the area and can keep you up to date with any new developments. They will also send you detailed specifications of suitable premises, which can prove invaluable, particularly if you are limited by time.

Commission is payable to a commercial agent for acting as an intermediary between you and the landlord or seller. Managing the relationship is an important aspect of appointing a commercial agent. While they will obviously bear your interests in mind, they may not be passionate about your business. Equally, they may not fully understand your needs. Having regular contact with the agent will help.

You should also draw up a contract with your agent, even if the relationship is informal. This will help to set out expectations and clarify your legal obligations to them.

Practicalities of renting

Contracts can be complex, so consider professional help, eg from a solicitor or chartered surveyor. While this can be expensive, mistakes can also be costly to remedy.

Financial considerations

Your financial commitments when renting include:

• rental costs
• service charges
• utility bills
• a deposit - typically equivalent to three or six months' rent
• stamp duty, which is payable on all commercial leases
• business rates - you can challenge your business rate assessment but it is advisable to get specialist advice

Normally, the landlord will request references to confirm you are able to pay your rent. You may find it advantageous to have a guarantor for your rent and other liabilities under the lease.

You should also be aware of costs associated with Business Improvement Districts. If a scheme goes ahead in an area (with a majority vote from business ratepayers), you will liable for some costs. However, you will also benefit from improvements to the local trading area.

Planning

Before renting a property, make sure you have planning permission to make any changes you need to the property.

Find out if there are any restrictions on delivery or loading times that may affect your business. There may be other restrictions or covenants in the lease or imposed by the local authority - eg rubbish disposal, parking, noise, lighting, litter.

Insurance

The lease will state whether you or the landlord need to arrange insurance for the premises. If the landlord arranges this, you may need to take out additional insurance to cover risks, such as loss or damage to contents, which are not covered in the policy.

Search for premises

It's worth starting by drawing up a specification or "spec", clearly setting out your requirements. Distinguish between what is essential and what is merely desirable.  You can then circulate this spec to likely sources of premises such as commercial agents who act as estate agents for commercial premises. Local surveyors, who can assess the condition and value of premises, may know of suitable properties in the area. Organisations like your local authority, Business Link, Chamber of Commerce and your trade association may also be able to help.

At the same time, you can check local newspapers and specialist papers. You can also search on the Internet, or just look for advertising boards on local properties.

Check any potential premises against your spec, and eliminate any that don't at least meet all your essential requirements. Then you can draw up a shortlist of properties to visit.

At this stage, you may want to involve professional advisers. For example, a surveyor can assess the condition of premises and give you an idea of their value.  Finally, your solicitor can help negotiate the deal and complete the legal work.

Source: www.businesslink.gov.uk