10 considerations before opening a cafe
Launching a brick-and-mortar business is an exciting venture that involves lots of important decisions – one of the biggest being whether you want to buy or lease the property that you’ll sell your products in or where you’ll service your clients. This article breaks down the difference between a retail sale and retail lease, to help you work out which one best suits you and your business.
What is a retail sale?
A retail sale occurs when you purchase a retail property from a seller, with either cash or a loan, and it becomes your own. If you use cash, you own the property outright, right away; if you use a loan, it will take a little longer for the property to be fully yours – only occurring once you’ve made your final repayment at the end of the loan term.
What are the pros of a retail sale?
When you buy a retail property, it’s your asset that you can do what you like with.
Here are the advantages of buying a retail property:
- Creative control: As the owner of the property, you’re not at the discretion of a landlord. This means you can make all the structural changes you want, so it meets the needs of your business, without having to seek their approval first, as long as they’ve been approved by council and they meet relevant strata laws.
- You can lease the building: If cash flow gets tight, or you simply want to bring in some extra income, you can lease out unoccupied areas of the building (or the whole thing, when you’re not using it) to tenants.
- You can reap returns: The value of the property can increase over time. If you sell the property down the line for more than you bought it for, those capital gains are yours (subject to tax obligations, such as capital gains tax)..
- Total cost of ownership can be lower: You’ll likely need a large chunk of capital to buy a retail property; however, your ongoing costs may be less than renting, especially once you’ve paid off your loan – often saving your business a significant amount of money in the long run.
What are the cons of a retail sale?
Benefits aside, there are some disadvantages you should be aware of when it comes to buying a rental property. They include:
- Large upfront costs: Buying a commercial property is a major financial commitment, usually requiring a substantial deposit, that can take a lot of time to save up for.
- You can lose money: If the property market declines, the value of your premises will likely follow suit – meaning you may wind up incurring a loss if you decide to sell it.
- Limited flexibility: It can be hard finding a property that not only suits you now, but also will in the future. If your business grows quickly, being locked into a premises that’s too small could stunt your business growth – doing your business more harm than good.
- Ongoing costs: All the costs of owning the property falls on your business’ shoulders, such as maintenance, rates and other fees, instead of the landlord’s.
What is a retail lease?
A retail lease is when you pay the owner of the retail property (the landlord) to use the space for a certain period of time. You’ll enter into a legally binding contract that outlines the terms by which you (the tenant) can rent the property.
The laws that apply to retail leases differ slightly for each state and territory in Australia, including Queensland, New South Wales, Victoria, Northern Territory, South Australia, Western Australia, Australian Capital Territory and Tasmania. It’s important to understand your rights and obligations, depending on where you live, to ensure you know where you stand before committing to a retail lease.
What are the pros of a retail lease?
From flexibility to freeing up capital, here’s the advantages of leasing a retail property:
- Lower upfront costs: Instead of paying a hefty deposit, you’ll only need to fork out a bond which is usually the rent multiplied a few times.
- Flexibility: If you outgrow your current space, it can be easier to move to a new one. This is because you’re not locked into a contract indefinitely (unless the lease you sign says otherwise) or stuck with something that’s hard to sell quickly.
- Capital freed up: Seeing as your business’ capital isn’t tied up in owning a property, you have the freedom to invest more money in growing your business.
- Less responsibility: It’s a lot of work to run a business. Leasing allows you to focus more on your operations and less time sorting out things that the landlord is responsible for, such as repairing reasonable damages.
What are the cons of a retail lease?
Let’s not forget the disadvantages. Here are the potential pitfalls of a retail sale:
- Approval: If you want to make any modifications to the property, you’ll have to get approval from the landlord first, meaning you’re limited to what they allow you to do.
- Rent rises: Landlords have the power to hike up rent on the property, which can make it difficult to manage cash flow.
- Impermanence: When you reach the end of your lease, the landlord can choose not to renew it – leaving you to look for a new premise to do business in.
- Consequences: If you fail to pay rent on time or you don’t properly maintain the premises, you are in breach of your lease, which can result in rent recovery action or lock-out measures by the landlord.
Starting a retail business
Whatever property path you decide to go down – whether buying or leasing – you’ll need the right tools to make your retail space count. Tyro EFTPOS is a great solution for retail businesses looking to streamline their payments processes.
Some features include:
- Sub 1.5 second transaction speeds¹, so you can serve your customers fast
- Seamless integration with over 330 POS and PMS providers
- Reporting capabilities through the Tyro App and Tyro Portal, so you can keep track of your trading in real time, from wherever you are
The bottom line
A retail sale and retail lease are completely different ways to secure a property for your business. Make sure to consider your business’ needs and goals, and weigh up the pros and cons of both, to land on one that works for you.
Want to talk Tyro EFTPOS? We’re ready to chat!
1 Average time taken to authorise a Visa, Mastercard, eftpos payment transaction, during the period 1 Feb 2022 to 30 April 2022. Measured as the time elapsed from a cardholder presenting the card on the EFTPOS machine to the return of the authorisation on the EFTPOS machine from the card schemes.