Why entrepreneurs should stay focused on business needs and not overlook the details
Real estate can be an important business investment for entrepreneurs, especially as it can enable you to grow your equity base.
According to research by Business Partners, a specialist risk finance company for formal SMEs, purchasing property for a business premises, business owners can save up to 50% on premises costs over a 10-year period, without compromising the business' cash resources.
It's important that the decision to invest in commercial property aligns with the businesses’ growth objectives, says Attie Anderson, FNB Head of Business Lending.
“Being in a position to buy commercial property is an exciting phase for a business as this creates new possibilities. In some cases, commercial property buyers make impulsive decisions based on emotions rather than sound business objectives. During the decision-making process, it is important to remain focused on business needs and not overlook the finer details which could have long-term limitations on business growth,” he says.
Here are 5 mistakes that business owners need to avoid when investing in property:
1. Not doing your research regarding whether the property is zoned for commercial use or investigating any potential town-planning restrictions for the chosen area.
"This will give you a good sense of whether your business could face growth restrictions in future" says Anderson.
2. Not considering the business’ growth potential and whether the targeted location could accommodate such growth.
"It is not advisable to buy property to only sell a few years later because you could potentially lose money and sourcing new property comes with additional costs such as agent’s commission and transfer costs", says Anderson.
3. Not checking if the location is convenient or accessible to employees or clients.
"This could be detrimental because you could end-up investing more resources in transport or losing talent due to the inconvenience of the business location. Similarly, you want to ensure easy accessibility for your clientele since this has a direct impact on the future of your business".
4. Not accurately determining the property's value.
Anderson says: "the objective of every property seller is to make substantial profit from the sale of their property. This is why commercial property buyers need to understand and research the potential value of their targeted property and negotiate a reasonable price".
5. Not understanding upfront and ongoing costs
"Similar to buying residential property, there are upfront costs that need to be settled by the buyer during a commercial property transaction. These include transfer and/or registration costs, and these largely depend on the sales price," Anderson says.
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