ABC Company is facing a dilemma as they develop a one-year, three-year and five-year growth plan.
They have been growing at 50% every year or doubling every two years. They have outgrown their leased space with their lease coming up for renewal in a few months. They need to upgrade the office space in order to attract new talent as well as offer additional benefits. Their cash flow has been good but not great and the NOI (Net Operating Income or Profit) has been growing every year. Their dilemma is whether to lease a new and larger space or buy an office building.
If they choose to buy a building it will greatly impact their cash position with a 20% down payment. They would also pick up taxes, insurance and any repairs required in the future. However, they would be paying off a mortgage and building equity. A building purchase, unless oversized for now, would limit their growth and expansion in the future.
If they choose to continue leasing their space on a three-year term, with space for limited growth, it will conserve their cash position and with continued growth provide the additional space required. As an office lease, generally the taxes, insurance and any repairs are included in the monthly rent payments. This will protect their profitability now and expand it into the future.
In order for a business to survive and prosper in today’s climate it must be flexible and adaptable. Leasing a space provides for more adaptation should a competitor enter the market, a new product makes your service or product obsolete or the business climate experience a dramatic change. Purchasing a building builds equity but lacks liquidity (ability to sell) if demand in the market changes.
Often the choice comes down to cash outlay and mortgage payments as opposed to hiring new employees, buying new equipment or acquiring new technology.
On the Local Scene
The BANCROFT ENTERPRISES BUILDING located at 3 Bancroft Circle, Monroe has sold for $585,000. The 9,000 sf building sold for $65 psf
Two new BINGO HALLS are scheduled to open soon, one at 8303 DeSiard, Monroe and a second in the Shoppers Village Shopping Center on Smith Street, West Monroe.