Here is a great question that came in to me from the blog:
I am a small business owner and currently employ 1 full time worker and my wife. We opened in 2008 with 4k and lots of prayer, we’ve had several bumps in the road but nothing that would be considered a “stupid” mistake, praise the Lord. We currently rent a portion of the building, the business is growing every year.
I feel like we are starting to outgrow our current location, at what point should/could we start to look at investing in commercial property?
Thanks again for all you do! God Bless.
It’s a fantastic question, with not a lot of details to go on. So I can’t really answer you specifically, but I can generally. Buying commercial property is a BIG decision. And I dare say, way to many businesses jump at the idea because it seems so cool to be able to own your own place.
And yes, there are a billion people who would argue that it’s a smart investment. I’m gonna tell you that it’s just like buying a house. I prefer that if you’re going to buy a place, that you do it for cash. Hold on opposing view commenters, keep reading first.
I think you should run your business debt free. That meeeeeeans completely! Business is tough. Leveraging yourself just makes it that much tougher. And for all of the people who just said, “psshhh…you can’t run a business debt free!” You are incorrect. Read Can You Run A Business Debt Free?
When you decide to purchase a building with debt, you’ve now added that “fixed” expense to your P & L, that will still be there even if you have to close the doors. Now you have a payment that you HAVE to make no matter what. Instead, rent as long as you possibly can, and save the money for the purchase.
If you don’t have the money, and you’re outgrowing your current space, then start by budgeting out the next five years. How big do you project to be five years from now? How much in sales? How many team members? How much storage space will you need?
When you know what that looks like, now you can start looking for a place that will fit you now, and allow for growth. This will also allow you to put a ton of cash away for a potential purchase five years from now. Now you have a plan for growth and ownership.
So many people tell me that they can grow so much faster if they just go into debt. Sometimes you can. But what ends up happening, is you shackle yourself as you grow because you’re still heavily in debt. And I know we’ve never had a downturn in our economy here, so we really don’t need to worry about business suffering…right?
Question: What are your thoughts on the right time to buy commercial property?