Pros & Cons of Leasing vs. Buying Office Space for Your Commercial Cleaning Company

As your commercial cleaning business grows, you'll likely be faced with a difficult choice —whether to lease or buy office space. The answer is rarely clear cut. 

It's important to carefully weigh the pros and cons of each option. Your decision will likely be based on a variety of financial considerations, and may even require the input of an accountant and/or financial planner.

Before diving into the specifics about leasing or buying office space, however, let's talk about home offices. If you're just starting out in commercial cleaning, working from home may have many advantages. There's very little startup costs, and you can deduct a portion of home expenses (utilities, mortgage, and mortgage interest) on your taxes. 

Does your home have a dedicated office space? Will you be the only person working out of that office? Is there sufficient storage in the home for equipment when it's not in use? If so, working from home may be a viable option. 

Note: Check state and local ordinances and zoning laws as well as any neighborhood association restrictions before setting up a home-based shop. Some areas limit the types of business that can be conducted from home. For example, restrictions may limit noise levels, vehicle traffic, parking, signage, and hazardous materials in some locations. 

As your business grows to include additional office-based staff, or your storage needs overwhelm your home's capacity, you'll need to move your operations elsewhere. When that time arrives, you'll have two options—leasing or buying.

leasing vs buying office space

Leasing Office Space: A Flexible Option

Leasing offers great flexibility for commercial cleaning businesses. Maybe you've operated from home for a year or two, but now your business has grown and you need to expand. Or, maybe you've been in business for many years and decide the next move should be into your own facility. 

A lease allows you to contain costs while your business is in a mode of expansion or reduction. A lease typically includes most facility costs (property tax, insurance, maintenance) and your payments are tax-deductible. This arrangement frees up working capital so you can use your dollars to respond to market opportunities. 

Also, leasing requires fewer upfront costs than buying. You'll likely need a deposit and first and last months' rent when you sign the lease, but that's far less than the down payment, appraisal, and maintenance costs a purchase entails.

As another benefit, a lease may allow you to rent in a more desirable area than you could afford to purchase. Plus your landlord is responsible for handling most maintenance issues, leaving you to focus solely on your business. 

When we leased our first office, we agreed to a 5-year lease so the landlord would make updates to the space that fit our needs. If you only sign a 1 or 2-year lease, they are less likely to make improvements to the space. 

That all sounds pretty great, right? Before you rush to sign a lease, however, take note of the downsides. The most notable con for leasing is its variable nature. 

The dollar amount or legal terms of your lease may change significantly when the lease comes up for renewal, typically every 5 to 7 years. And if the property owner has improved the building, or property values in the area have risen as a whole, your landlord may increase the lease price upon renewal. That can leave you scrambling to find a new space or stressing about how to cover the increasing costs. 

Finally, a lease provides you no equity. Your payments are helping someone else pay for the property and build their own real-estate nest egg.

Buying a Commercial Building

Some business owners prefer to buy a property because it gives them greater control over many aspects of their business. In addition, they can build equity with a mortgage instead of paying rent and funding someone else's retirement. 

Your mortgage can have different terms. Some lenders may require a balloon payment every 5 years, which means you'll re-negotiate your loan rate at that time. Or your mortgage may be a fixed amount for the term, usually 15 to 30 years, much longer than any lease term, which gives you the security of always knowing your building cost. Plus, you have the option of renting out a portion of the property as an additional source of income if you don't currently need all the space. 

While buying can offer a business owner more freedom than leasing, it also entails more responsibility, commitment, and additional costs that must be budgeted. For instance, you'll be responsible for maintenance and upkeep of the property, as well as insurance and property tax. On the upside, however, those expenses (and others like mortgage interest) can be great tax deductions. 

Another thing to consider: Should your business rapidly grow or fall apart, you may need to sell your property. If property values haven't increased much, you could potentially lose money in the deal (or be forced to rent out the building and take on property management responsibilities). And if you can't find anyone to lease the building, you'll be stuck with all the costs, which can quickly drain funds. 

If you have only enough capital to invest in one enterprise, it may be wise to invest in the business itself rather than taking on the burden of owning and managing property as well.

What To Look For in Commercial Space

Whether you lease or buy, remember that most commercial cleaning businesses use their office for employees (customers won't visit frequently). Therefore, practical considerations should be foremost when deciding on the building and location. 

While the facility needn't be pricey or impressive, it should be safe, functional, and large enough to accommodate an administrative work space, storage of equipment and supplies, and a small reception area for occasional guests.  You'll also want a training space for onboarding and training new employees and conducting employee meetings. 

For your staff that work or occasionally check in at the building, you'll want a break room, a washer/dryer hookup for washing cleaning cloths and mop heads, as well as sufficient space for them to perform prep work and minor equipment maintenance off the customer's premises. 

When choosing office space, you'll find that home-based, leased space, and property ownership all have their advantages. 

Office leasing can be the perfect choice when you need flexibility, cost-containment, as well as room for change. Buying may make sense if your business is quite large and you're looking for more tax write-offs and a way to invest for the future. 

As with any major financial decision, however, talk to a professional (such as an accountant or financial advisor) to weigh out the pros and cons of leasing and owning for your particular situation.

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