For a lot of startups, owning and building your own space can be an important milestone – a sign that you’ve ‘made it’. No more dealing with landlords, surprise rent hikes or compromises on renovations. Just your own perfectly tailored HQ.
But building your own commercial premises can also be a big, high-risk move – especially if you’re still a young company. In the right circumstances, it could lead to massive growth and success. In the wrong circumstances, it could be a very costly mistake.
To help you decide whether it’s a good idea, here are some key questions that you should ask yourself.
Do you require somewhere fully customized?
Let’s start with the ‘why’. Just why should you build your own premises instead of leasing or buying an existing building?
Designing a new building from the ground up only truly makes sense if the type of building you need doesn’t already exist in the area you need it.
Either your business is very specialist or you want to go above and beyond what is already out there to have a competitive advantage. A few examples where it may make sense to build your own premises include:
- An advanced manufacturing company that needs specific ceiling heights, specialized foundations or unusual power requirements.
- A lab that needs strict environmental controls or custom clean rooms.
- A hybrid facility that can’t be found easily on the open market (part warehouse, part showroom, part production, part office).
- A novelty leisure attraction (such as a sports stadium, a rotating restaurant, an aquarium or an indoor skydiving centre).
Existing buildings may be possible to customize to your needs through redecoration and renovations. This is particularly the case if you buy a building, however even rented commercial spaces can often come with improvement allowances – especially if you’re entering a long-term lease.
Of course, it may reach a point where necessary renovations are so extensive that it’s more economical to build somewhere from scratch. For example, it may be possible to turn an old warehouse into a movie theater, but it’s not worthwhile if it costs just as much to construct a brand new building.
Can you afford to build your own premises?
Building your own commercial premises often requires significant upfront capital. Even if you are able to obtain the funding, you need to factor in the risk of something going wrong during construction, and what you will be paying back in the long run.
You will typically need to budget for the following costs:
- Land acquisition: How much will a suitable plot of land cost?
- Design fees: Architects and engineers will need to be paid.
- Construction costs: This includes materials, labor, equipment and site preparation.
- Other professional fees: You will also need to pay for permits, surveys and legal processing.
- Furnishing: Also consider the cost of furniture, interior decorating, IT infrastructure, signage, security and specialized equipment.
It could be worth working with a commercial construction company that can handle both the design and construction process. Get estimates from various different companies to get an idea of how much the entire project will cost, and consider how different materials and construction methods may affect the total sum (prefabricated buildings can often cost less due to quicker construction and lower cost materials).
When getting financing, take your time to compare commercial custom build loans from different lenders and banks. You may potentially be able to also seek funding from investors, but this will mean giving away shares in future returns. Grants may be available for certain commercial construction projects, but may only partially cover construction costs.
In the long run, building your own premises can lead to significant savings. However, you need to be certain that you’re still making a decent profit for years to come, which leads to the next important question…
Are you definitely in it for the long term?
Buildings are long-term bets. If you’re only a startup, you could still be in the experimentation phase. You need to be certain that you’ve established a stable business model that will be able to cover the long term costs (such as loan repayments and other running costs).
Be very careful if you are in an emerging or unpredictable industry – changes in trends, evolving tech or regulatory changes could dramatically impact the success of your business in the near future, and a short term lease might be safer for not tying you down.
If you’ve already been in operation for a while and you’ve seen steady growth so far, building your own premises might seem less of a gamble. This raises another important point, which is to consider any future growth when designing your building – you don’t want to outgrow your custom premises in a few years time and then struggle to sell it due to it being tailor-made to your business. At the same time, you don’t want to build something excessively large, as it will cost you more.
What will the construction time be?
A final important consideration is the time it will take to build your new premises. Moving to a new existing premises could be something you are able to pull off within a month, whereas a commercial construction project could take 12 to 24 months.
If you’re running your business from another premises, you’ll need to cover the cost of this and the cost of construction at the same time. You’ll also need to have enough time to oversee construction. This could be too much of a stretch for some business owners.
You may want to hire someone to manage the construction project for you, or you could allow an assistant manager to take over the day-to-day runnings of your business while you focus on the construction of your new workplace. Consider also saving up some funds in advance to reduce the financial stretch.
Construction projects do not always go smoothly, so you need to also have a contingency fund and a backup plan if you’re unable to move into your premises on the scheduled date. Keep continuous communication with suppliers and customers throughout the process.
