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I have a client that has set up an internet company. After six months of working from home, the company is now looking for business premises. Should they rent or buy?

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  • 13/11/2001
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The answer to this has to reflect the short period for which the business has been established. Had ...

The answer to this has to reflect the short period for which the business has been established. Had it been, for example, three years and the nature of the business been different I would recite the relative benefits of renting and buying.

However, this question poses two immediate problems. First, landlords and lenders alike are presently very circumspect about the covenant strength of internet companies, given the high profile failures of the last year or two. Most are taking the view that it will be several years before e-commerce ‘ and the majority of companies spawned from it ‘ achieve any sort of financial stability. Even offshoots of the largest institutions ‘ which have spent millions on development ‘ are struggling to cover their costs.

Second, a six-month track record is far too short to enable either a landlord or a lender to judge the medium to long-term ability of a prospective tenant or borrower to pay rent.

Serviced offices could be a good compromise. For a monthly fee your client will get accommodation of a high standard in a good location, the use of full office facilities, including receptionist, dedicated telephone and ISDN lines, board/meeting rooms and refreshments. They also get the opportunity, not often highlighted, to network with like-minded companies that may be in complementary areas of business. What they do not get is the problem of being committed long term as they can leave at one or three months’ notice, nor the obligation to arrange repairs, maintenance, cleaning and other distractions enabling them to focus on making the business a success.

After a couple of years we hope they will have succeeded and have three years’ accounts to present to a landlord or lender. If they have accumulated profits to put down a 25%-30% deposit they may decide to buy. If not, or they wish to keep their capital liquid, they could chose to rent.

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