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Purchasing a business – what you need to know

Purchasing a business – what you need to know

You’ve always dreamed of your own little cafe, or a new opportunity has landed in your lap, you’re looking for business premises. While many business owners choose to lease, there are a number of reasons why buying a freehold might be right for you.

Buying a commercial property gives you control over the layout, without any restrictions as to its use and the security of knowing that it will always be available.

It’s also a bigger financial commitment than taking on a lease, so make sure that the premises you’re choosing is right for you. Here are a few things to look for.

Location

This is one of the most important factors for customer-facing businesses, and much less important for premises to which clients don’t come. For the former, consider how easy it is for customers to access the store. Is there available parking, does the location get foot traffic, and is there a public transport option nearby? If the store is close to other services, that can be a bonus as it gives people a reason to be in the area. Look at whether there is competition in the area: there’s little point opening a specialist camera store next to one that already exists, or being the third organic vegan Moroccan restaurant on the strip.

Appearance

You’ll want to brand the premises to match your business, but have a look at how it appears already. Does it get a lot of natural light? Is the exterior in good condition? Clients aren’t likely to think highly of a solicitor’s office which is peeling and cramped, for example. Whether the aesthetics of the premises are right will depend partly on the type of business. Put yourself in your potential clients’ shoes: do you feel comfortable inside? Does the building send the right message?

It goes without saying that the building should be sound, and you should always get a building inspection. If you’re buying a business with plant and equipment included, take some time to make sure they’re also in good working condition.

Capital investment

An advantage of buying a commercial property rather than leasing it is that it will hopefully appreciate over time and you can sell it for a profit. If you choose wisely, you can both gain a premises for your income-generating business, and an asset that you can sell later.

To help you pick a good investment, look at the history of the area. Do businesses typically do well there? Is the population growing, or at least stable? Does the infrastructure of the area support modest population growth, and are there enough local employment opportunities? Commercial property is considered higher risk than residential in part because if the commercial opportunities change, it can stand vacant for long periods of time. Due diligence will help you avoid this problem and assist you to buy a solid investment.

Financial considerations

Lastly, be aware that obtaining finance may differ from a residential purchase. Because of the higher risk nature of commercial properties, financial institutions often require a lower LVR (loan to value ratio). Whereas you can borrow 90 or even 95% of the cost of a residential property, commercial loans are often capped at 70%. The loan term is also typically shorter, being 15 to 20 years rather than the 25-30 commonly seen in the residential sector.

As with any financial undertaking, seek advice from your financial advisor before plunging in – Elders Home Loans would be happy to assist. If you find the right premises, you’ll see your business – and your fortunes – soar.

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