There are a lot of business startup guides online but not many of them focus on the aspect of rental. A lot of start up companies rent equipment, vehicles, office space, etc. because they simply don’t have the capital to purchase expensive items. Even long standing and experienced businesses might enter into rental and lease agreements to save losing hefty chunks of capital. It all depends on the business and on what’s right for them at the time. Here is some key information on rental that might help your business.
First: Be Clear On StartUp Funding
You need to be clear on your startup funding and know how much you have to play with. This will give you what you need to make well informed decisions about rental. If the equipment costs a lot of money (think heavy machinery, aircraft, vehicles, warehouses) the likelihood is that you’ll end up needing rent arrangements in place. If you have good startup funding you may not need to enter into long term lease arrangements with other businesses and you’ll save yourself money long term.
The key to remember is that startups need liquid cash. There are probably so many aspects of business that need cash like advertising, web enhancements and development, SEO, branding, etc. So although you’ll save a lot of cash over the rental term by buying, it still might not be the best thing for your business.
Rent Abatement: Good For Cash Flow But Needs The Right Accountancy Treatment
Rent abatement can be a good answer if you need liquid cash and want to forestall the repayment of debt. In short, rent abatement is where there is a certain, agreed upon, period of time where the tenant or person leasing equipment isn’t required to make a payment. So, for example if you rented an office there might be 6 months of no payments before you started paying. As you can see rent abatement can be a brilliant way of letting your business take a breather but you have to make sure you account for it properly under the new lease accounting guidelines, ASC 842. They’ve moved on somewhat from the old lease accounting guidelines, so if you think this sounds like something that might suit you, make sure you know how to treat it from an accounting perspective.
Be Sure To Shop Around For Space And Equipment
While rent abatement is a great way of putting off payment, you also need to make sure you’re getting a good rental price. This applies to both buildings and machinery. There are multiple providers out there and if you’re looking for rent abatement the price can be skewed. It does mean in the months you pay, you’ll pay more. So, with that in mind, make sure you shop around and look out for good savings. If you total up the savings over the whole course of the lease, you’ll see that it’s actually quite significant.
Remember, the devil is in the detail. So make sure that you’re looking at the contracts in full and if there are elements you don’t understand speak to an accountant or someone who has looked into lease agreements before.
