Should Restaurants Lease or Buy Their Space ?

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• Should Restaurants Lease or Buy Their Space?
• Should restaurants lease or buy? Buying or
  leasing is always a prime consideration for a new
  business, and the question for a new restaurant
  can be especially problematic. There are pros and
  cons to either decision.
• While folk wisdom attributes a high risk of
  failure to restaurants in the first year, that
  perception has actually been proven false. A
  study conducted in 2014 found that new
  restaurants fail at about the same rate as other
  small businesses 17 during the first year
  and exactly the same as insurance agencies and
  brokerages. The rate is actually below average
  for small service business of all types, which
  stands at 19.
• So a new restaurateur should not necessarily let
  the risk of closure color a decision to rent or
  buy space. That being said, leasing a space that
  previously housed a full-service restaurant may
  shorten the time frame to opening and require
  less capital outlay than leasing bare space or
  buying. This is a bit more nuanced than deciding
  between buying or renting a primary residence, so
  businesses should try to separate the two lines
  of thought as best they can.
• Primary Advantages of Leasing
• A lease is for a specific term and a set dollar
  amount. There may be finish-out fees, recurring
  charges and escalation clauses but, in general,
  a lease represents a defined expense that can be
  plugged into the operating budget.
• Pros
• Fixed cost for a specific term
• Options for the future
• Generally lower capital outlay
• Flexibility to spend existing cash for payroll,
  menu development, customer building and
  marketing.
• Cons

• Limitations on finish-out and decor landlord
  participation in terms of cost
• Specific lease term, and possible higher costs of
  renewal
• No opportunity to build equity
• Changes in neighbours or neighbourhood can
  negatively affect business
• Liability in case of closure.
• Leasing space for a new restaurant should be
  viewed as just one of many business decisions
  that must be made. Variables include location,
  future growth plans, design and decor needs,
  additional required expenditures for equipment,
  possible municipal and health department
  inspections and/or permits and code compliance.
• Start-up costs, however, are quantifiable, as are
  the general operating costs for the duration of
  the lease term.

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The Benefits of Buying Owning commercial property
has long been considered a goal for business
owners. Some restaurant owners see that as the
ultimate goal, a way to ensure future stability
for a successful restaurant. Owning commercial
space in which a restaurant is located may be a
smart investment move, offering the opportunity
to lease space to other compatible tenants and
realize supplementary income. Initial cash
requirements may be higher than for leased space,
and buying a building is typically a long-term
commitment, with a mortgage. Mortgage lending is
based in reality, but the value of building
ownership goes beyond the immediate business use.
A single-use building might have limited use for
other purposes a larger building could house
multiple businesses. In a vacation area, a
well-known restaurant can become a destination
landmark, but in another place, the same space
could be home to a changing parade of
eateries. Look to the Future Before choosing to
buy a building for a restaurant, consider the
area and its future growth and development.
Opening a restaurant in a former gas station or
downtown bank building might be trendy, but it
can be risky without definitive market research
beforehand, and renovation costs are often
high. A lender will want to study the
projections, and will base a decision not only
the financial strength of the buyer, but on the
projected profitability of the restaurant itself.
Location and the assessed value of the building
are important, but so is the business plan. As
with any investment, an exit strategy may be an
important consideration. In the event the
restaurant is not a long-term success, would the
recoverable value of the building still make it a
good deal? There may be no easy answer leasing
or owning is a personal choice based on many
different factors. Article Source
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ts-lease-or-buy-space/