July 3, 2017
Buy vs. Rent: The Small-Business Conundrum
Your business is growing up, and it’s time to consider investing in its future. The question for entrepreneurs is just how permanent your investment should be.
Here are four small-business resources — office space, employees, equipment and technology — and guidance to help you determine if you should buy or rent.
Home sweet rental
Your office is an essential component to your business. But unless you need a customized space or have no intentions of growing, leasing is the way to go, says Jonathan Wasserstrum, co-founder and CEO of SquareFoot, an online platform that helps connect business owners with office space.
Buying real estate ties you to a specific location and leaves you vulnerable to fluctuations in the real estate market. It also adds another worry to a business owner’s already lengthy list of concerns.
“You have your own business to worry about and keep you up at night,” Wasserstrum says. “Why add real estate to that list? If you own your space and the toilet breaks, you can’t call the landlord to complain … you are the landlord.”
To hire or not to hire?
When it comes to hiring, remember that business is cyclical, says Susan Solovic, who serves as a special advocate for the advocacy group Small Business & Entrepreneurship Council.
“It’s feast and famine,” she says. “You don’t want to staff up for the feast time then find out in famine times that you’re going to have to let someone go.”
Until you feel like you are on solid financial footing, use contractors or freelancers. The one exception? Hire someone to complement your skills as a business owner if you know you don’t have the ability to tackle every aspect of the job.
If you’re not a strong people person, “you might want to bring in someone to be second-in-command to help with business development,” Solovic says.
If you use contractors, make sure you do your due diligence: Interview them like you would any employee to avoid getting stuck with mediocre work or missed deadlines.
You can also consider the ultimate temporary workforce — interns. If you need marketing help, check out a local university to find students ready for resume-building experience.
However, even if the students are receiving academic credit for the internship, Solovic recommends paying them. Businesses with unpaid interns have to meet specific requirements under the Fair Labor Standards Act.
Small-ticket items, like equipment you might need in an office or retail store, have become relatively affordable and multifunctional. Instead of buying a scanner and a printer, you can get one piece of equipment that does both. This saves space and time, and could make spending the money to own the item more reasonable.
Now, say you own a construction company or a restaurant. The big-ticket items — construction equipment, stoves or refrigerators — are likely more financially cumbersome than an office printer.
When deciding whether to buy, consider how often you’ll use the item, and weigh the cost of purchase and maintenance versus lease payments. If it’s something you need often, like restaurant equipment, buying new (or lightly used) products is a good investment as long as the financing terms don’t exceed the equipment’s life span. If it’s something you need for a few jobs here and there, like heavy equipment or trucks, consider leasing.
“You need equipment that is going to allow you to be productive,” Solovic says. Ultimately, if you’re in a position to consider buying a big item outright, your business is probably doing well. It’s time to sit down with an accountant to help you budget.
Software and the cloud
Focusing on your business requires up-to-date technology, something small-business owners may not have the time to manage. Software as a service, or cloud-based programs that require a subscription payment, typically offer free tech support and automatic updates.
While subscriptions can be enticing, it can make more financial sense to purchase licenses for specific software, says Miguel Cuevas, founder of business operations consulting firm IT Systems Solutions Pro. Consider purchasing software if it can be used for at least three to five years and updates are available. You’ll have to install it yourself.
If you go this route, Cuevas suggests scheduling an IT consultant to come in every month or so to perform updates and fix glitches.
When is it worth paying for a monthly software service? Cloud-based technology enables access to programs from multiple devices, making it a good option for businesses that involve travel or field work.