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Should I Buy or Rent Space For My New Business?

Sandy Weitz, MD, writes about some of the factors you will want to consider before deciding whether to buy or rent the space for your new practice.

One of the questions that I’m frequently asked is, “Should I rent or buy the space for my new practice or business?”

Let me start by telling you that, in the long run, owning your own space and paying yourself rent can have significant advantages.

But before you rush out to buy that initial space, I want you to understand that the answer is not that simple.

There are several things that you will want to consider before making that decision.

 

How soon do you want to move into the space?

Let’s say that you want to start your practice or business in the next 6 months. While this should be obvious, it takes time to find the ideal space. If you want to buy the space, you’ll need to go through the due diligence, get financing, and do whatever buildout you want. This process of finding the space, buying it and being able to move in is likely to take more than 6 months. And that assumes that you find an existing location that requires relatively little renovation rather than buying one that requires major renovations or building from scratch. You aren’t going to want to have the grand opening of your new business in the middle of a construction site.

 

On the other hand, you can find space to rent in a much shorter time period.

The time-limiting factor when you rent is the time that’s needed for tenant improvements.

Tenant improvements are another way of describing renovations. Usually, landlords will give you some amount of money as an allowance for tenant improvements (and this is totally negotiable.)

 

The time-limiting factor when you rent is the time that’s needed for tenant improvements.

 

In general, your out-of-pocket expenses are going to be less when you rent.

This is an important consideration as you consider your start-up costs.

 

Do you know where the best location is for your new business?

Figuring out the best location is very different when you own the business. You want to understand the demographics of the surrounding area. Even a couple of miles can significantly impact the demographics of your potential patients and your payor mix.

You’ll want to think about things like the ease of getting to your location, parking, entering your space and more. Look, you could have the nicest space but if it’s difficult to get access, you’ll lose patients. People follow the path of least resistance. Is it a hassle to turn into your parking lot? Are there enough parking spots? How far do they have to walk to get inside your space? Is it accessible?

Unless you know that this space is the best space for your business, you’ll want to rent until you figure this out.

 

You’ll want to think about things like the ease of getting to your location, parking, entering your space and more. Look, you could have the nicest space but if it’s difficult to get access, you’ll lose patients. People follow the path of… Click To Tweet

 

 

Do you understand your clinic flow?

For you to choose the best space for your practice you need to understand how you are going to use it. For example, there are some homes that are gorgeous. Until you live there and realize that they aren’t as functional as you would like. If you own the place, you either put up with the inefficiencies, renovate or move. If you’re renting, you can just move.
To have your practice to maximize its efficiency, you need to understand your clinic flow and anticipate how it may change. How many patients will you see a day? How many people will be in your waiting room at any given time? How many exam rooms do you need? What other rooms do you want—break room and offices? How many bathrooms do you need? This is just the start of the questions to ask and answer.

 

For you to choose the best space for your practice you need to understand how you are going to use it. For example, there are some homes that are gorgeous. Until you live there and realize that they aren’t as functional as you would like. Click To Tweet

 

When you are starting a new practice or related business, you need really understand your business’ flow. You need to walk it, do it –exactly as you would once you move in so you can identify the limitations. I can’t stress enough how important it is to do this. You can think it, and you’ll fool yourself into thinking you have every step down.

The take home message– but basically you need to think through how every step of your business happens in the space.

 

How much space do you need?

When you are first starting out, “how much space do I need?” is one of the hardest questions to answer.

On one hand, you want to have enough space to function efficiently. You want to utilize all the space that you have—no beautiful nooks that really aren’t useful. On the other hand, you don’t want to have more space than you need. Yes, you may grow into it but when.

Yet, you want to have enough space so that your business can grow and expand without you having to move. You don’t want lack of space to limit your productivity.

If you buy a space for your new business, then you will want to anticipate your future growth so that you have enough space to grow into. As should be obvious, this will result in increased start-up costs. On the other hand, you can rent only the space you anticipate needing for the duration of the lease.

 

When you are first starting out, “how much space do I need?” is one of the hardest questions to answer. Click To Tweet

 

Let’s talk money.

If you decide to buy the space, you will need to either have the funds available or get a mortgage. Remember that you will have other start-up costs before you open and then operating costs that you will need to cover until you turn a profit. The start-up and initial operating expenses either come out of your savings or from a loan. If you buy a space, you need money to cover all these expenses. In other words, you may end up with a mortgage for the space in addition to a loan for your initial business costs.

Buying your space straight out of the gate increases your risk relative to renting. When you rent, you minimize your risk. First, your initial costs for renting are limited. You are likely to only have a deposit, first month rent and the tenant improvements. You may even be able to roll tenant improvement costs into your monthly rent payment. This is an important consideration because you want to minimize your expenses before you establish a revenue stream.

 

Renting your initial space also gives you more flexibility than buying.

Let’s say you realize that the location isn’t optimal, and the space doesn’t enable the most efficient workflow. Or maybe your practice is so successful you’ve outgrown the space. if you are renting the space, you can sublet the space or end the lease. In any case, your risk is minimal. Conversely, if you own the space, you either must find another tenant or sell. Regardless, you have assumed all the risk for that space at a time when your business’ success is most tenuous.

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