Buying a shop can be the start of a successful business venture, whether it’s running an actual business from the shop or letting it out as an investment. But what you get depends on what you buy. Here are your options.
Leasehold versus freehold?
First, you need to decide whether you want to buy a leasehold or a freehold. In many cases, buying the leasehold means that you only buy a certain proportion of the building, and you will still have to pay a ground rent. Buying the freehold as well means that you can more easily profit from the business premises, and you don’t have to pay any extra. In some cases, leasehold is the only way you can go, especially when you are buying space in a major shopping area.
Buying a complete business
In some cases, you will be given the opportunity to buy a complete business as well as the premises. The amount that you pay depends on the expected turnover of the business combined with the potential for profits. In some cases, you will have to pay a proportion of the profits for a certain amount of time – often a year – to the old owners.
In return, you will hopefully get a thriving business that can be further expanded or taken in a slightly new direction. This enables you to retain the old customer base, so you can keep on making money from your investment. In addition, you won’t need to pay extra to fit out the business, although you might have to have new contracts for certain supplies.
However, this typically requires you directly run the business, rather than letting someone else run it. In addition, if the business has a somewhat chequered reputation (particularly the case for pubs), you will inherit that reputation.
Buying just the building for a business
Buying just the building means that you can create a brand-new business for the area. Ideally, it should be something that the area needs and that you are not oversaturating the market. If, for example, a town of 5,000 people already has 12 hairdressers, a 13th hairdresser probably isn’t needed (on average, each salon served around 1,500 people in 2016).
Turning it into a unique restaurant, however, might be a better proposition, providing the customer base is there. You will need to allocate money to retrofit it regardless of what you choose, so include this in your costings. In addition, you will need to allocate extra money for consumables, advertising, a website and so on.
Buying just the building without the business
Finally, many landlords are starting to consider buying business premises and letting them out. In some cases, they can partition off the residential quarters or even live in it themselves while enjoying an income from the shop below. This can be an effective way of generating revenue – or they could sell it as a leasehold.
In this case, they don’t have to take any of the risk of running the business, except that if the business fails, they temporarily lose the income from it. The business could also end up in arrears, resulting in losses.
Of course, buying a business is a risk, but then it’s a risk that many feel is worth taking. It can be extremely rewarding to have your own business venture, and finding the right premises and the right type of business for you is of paramount importance. Choose wisely, and you could be set up for life.
April 24, 2018