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Balancing the Books of Your Office Fit-Out
There is no denying that an office fit-out needs to be carefully planned. There will likely be a little disruption to your working operations, and the costs can start to mount. Setting a budget in advance is advisable, while any business should also consider financing options. Fitting out an office does not require a lump sum, payable in advance. Instead, there is an abundance of financing options open to any business – many of which come with additional tax incentives.
In the interests of complete clarity, let’s review the options open to any business considering an office fit-out and how you can finance the task. Armed with such information, decision-makers can make the ideal choice for their circumstances.
Investing Capital
On paper, investing capital is the most risk-free option for a business considering an office fit-out. After all, it’s cash that is in the bank in the here and now. You will not be tying your company to any scheduled repayments in the future, protecting your outgoings if circumstances should change.
In addition, paying upfront ensures that all the contents of your office belong to your office – no questions asked. These could be treated as liquid assets or simply utilised with the peace of mind that everything is fully paid. What’s more, a business can theoretically reduce their corporate payable taxes by up to £1,000,000 following a capital-financed fit-out, claiming an annual investment allowance.
So far, so tempting? It is advisable to consider the potential negatives to this approach. The most obvious is that your business’s cash reserves will be significantly depleted by the fit-out. What looks like a reasonable prospect today could become a costly error in a year or two. Assess whether you are comfortable releasing such a substantial amount of your business income in one fell swoop, ensuring it will not impact your ability to invest in other, equally critical areas.
You may also find that purchasing items for your refit outright becomes a false economy. Technology is arguably the most potent example of this. IT makes sizable steps forward at breakneck speed, and what is deemed at the leading edge of science today could be obsolete in three years. This will leave a business with the unenviable task of refinancing an entire tech revolution. It may be wiser to sink cash investment into longer-term safe bets, such as furnishings.
Loaning Cash
An alternative to paying outright using business capital is to seek out a bank loan. This may seem like the best of both worlds if you can find an agreeable interest rate. You’ll have the financial resources in your reserves to ensure that you can make repayments, but you can sleep a little easier at night knowing that you have not emptied your business accounts.
Taking out a loan should be tied in with the lifetime of your needs. For example, if you have a lease on your office for another seven years, it’s inadvisable to take out a ten-year loan. There is nothing to gain by paying for equipment or furnishings that have long since been consigned to history.
There are other concerns to consider when taking on borrowing, though. The first – and arguably most compelling – is the complete absence of any tax efficiencies. You will also be committing to placing your business into debt for a set period. That is not necessarily a concern – managing debt, and knowing how much is appropriate, is an integral part of a business – but you will not hold any power in this arrangement.
Your business will need to make repayments on an agreed schedule, come rain or shine, and your financier may increase the interest rate payable at any time. Taking out a loan may seem like a swift solution in the short term, but it can have longer-term repercussions that you must consider.
Leasing
Finally, we have leasing – an approach that we consider the most advisable. Leasing an office fit-out is an undeniably effective way of spreading the expense of your outlay into fixed-cost instalments, usually over several years. You will not need to make any substantial payments at the onset of your fit-out, and your decision will not impact your company’s bottom line.
These repayments can be scheduled to suit your business, and a lease will not be considered an official debt. As a result, leasing will not negatively impact opportunities to borrow in a formal setting. Leasing also resolves any concerns surrounding advances in tech that we discussed previously, ensuring that your business will always enjoy access to the latest and greatest IT. Should you decide that you wish to take ownership of the items you lease, a single payment will invariably afford this opportunity.
Perhaps the most significant benefit of leasing is the tax advantages that such an approach provides. All lease payments can be declared a business expense, thus reducing your declaration of profit for tax repayment, while any VAT payments can also be reclaimed. These savings can be invested elsewhere in the business, building to an impressive sum over time.
Embarking upon an office fit-out is an exciting time for business owners and employees alike. Whether you are starting as an SME for the first time or considering a redesign to accommodate the changing workplace landscape, a fit-out should be exhilarating rather than intimidating. By ensuring that you are financially aware, this will be the case.
If you are interested in investigating leasing equipment and components of an office fit-out, consider the offer of Imperial Building Solutions. We have recently entered into a partnership with Bluestone Leasing for any company interested in such an arrangement.
Please feel free to get in touch and discuss your options with our experienced and knowledgeable team for more information.