New year, new start as businesses begin to assess their finances for 2017.
Tom Burton and Stuart Hastings of our Nottingham office offer some top tips to small businesses about managing the costs associated with their premises.
Many SMEs do not always appreciate that property is one of the most significant costs to any business. In addition to the rent and purchasing costs, there are many other factors which SMEs often do not consider fully.
While the rising costs of commercial property may not have a considerable impact on larger firms in Nottingham, smaller businesses are finding the extra cost of renting or owning premises and maintaining them considerably difficult, with property rates being one of the biggest expenditure points for SMEs. The latest revaluation figures are set to come into effect in April 2017 and could see substantial increases for some businesses.
In addition, a lack of available work space has seen office prices rise over the past 12 months. Many offices, including the former probation office on Derby Road, are now being converted into residential property, along with a number of other previously prominent office use buildings, further exacerbating the problem. Conversion of office space to residential is currently considered a low risk development proposal, offering comparatively good yields.
In reality, rent is only a small part of the cost that needs to be considered. Business rates, insurances, repairs and maintenance are all factors which increase the overall cost of any commercial property, often over and above those considered by those taking occupation of business premises for the first time.
Small business owners are often ill-advised or don’t seek professional advice when buying or renting commercial property and as a result they are often not aware of the associated costs, such as for repairs. Failure to budget for such expenditure has a strong possibility of having a significant impact on the viability of the future business.
However, what many business owners don’t know is that there are a number of ways in which they can plan for, project and even act to reduce associated costs.
Business rates, for example, are operating costs for the business and are calculated as an estimate. If the rate is too high, a company can appeal and question whether it is a correct or incorrect figure. With regards repairs, life cycle costs can be forecast prior to committing to a property interest, allowing a business to further ascertain likely wants of property expenditure. For let property, a notional dilapidations assessment could even be undertaken, once the details of the lease have been drafted, but prior to completion.
Those businesses proposing to occupy premises as tenants are often faced with a multitude of unknown cost liabilities, due to the onerous nature of commercial property leases. In order to ensure the best possible terms are achieved, it is imperative that professional advice is taken. In addition, professional advice should be sought when required throughout the duration of the occupation.
It is far too often the case that when a business is faced with a rent review, they will often agree to the proposed figure, without consulting a surveyor who could advise them whether the proposal is reasonable and in line with prevailing market conditions.
We also see this where dilapidations are concerned at the end of a lease - parties often do not consider the actual liabilities as set out in the lease or the implications or relevance of legal precedent or statute.
The cost benefits and savings achieved will greatly outweigh any professional services costs incurred and potentially onerous lease clauses can be negotiated prior to instructing solicitors.
Bruton Knowles provides professional advice and all aligned technical due diligence with a comprehensive appreciation for and understanding of the market, all associated legislation and means of mitigating avoidable liabilities.