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Commercial property – choosing the right location

In our last contribution to the Company Rescue blog, we looked at initial considerations for buying the right commercial property. Here, we will examine the next crucial factor: location.

Choosing the right location for your commercial premises is really a case of striking the balance between cost and convenience. Unfortunately, the more accessible your business is for customers, staff and suppliers, the more expensive it is likely to be.

Factors to consider

Accessibility

Reliable public transport links make life easier for both customers and staff and are very important for almost all businesses. Similarly, it is important that your suppliers are able to access your premises easily. Consider how often you will be receiving and sending goods, particularly if you are thinking of setting up in a congestion zone (see below).

Amenities and surroundings

Your staff will be far happier if they work in an area with good local amenities such as bars, shops, restaurants and recreational facilities. This may be similarly beneficial if you are likely to receive many clients at your place of work.
You may also find that your surrounding area affects the perception of your business, both by staff and potential customers.

Business rates and service charges

Business rates are linked to your property value, and a higher rates bill is often unavoidable if you need to buy in a more expensive area. But you should also look into how much your local authority will charge for ongoing services such as commercial waste collection, as these costs can have a significant impact on your profits.

Congestion charges

The impact that congestion charges can have on business performance is often hotly debated. Eighteen months after the introduction of the London congestion charge in 2003, a survey conducted by the London Chamber of Commerce and Industry (LCCI) showed that 84% of businesses had reported reduced takings year on year, and 63% of businesses had reported a loss of customers ¹. 
  

Transport for London (TFL), on the other hand, claims that trends in VAT registration, business rate valuation appeals and commercial real estate prices do not suggest that the charge has had a deleterious effect on local trade. They in fact claim that the congestion charge has been beneficial for businesses in terms of working environment and ease of travel ².

Local competitors

For some types of business, being located near to too many competitors can severely impact trade. On the other hand, certain businesses tend to attract customers who will shop around before deciding on a purchase, and can actually benefit from being near a handful of similar businesses because of this (estate and letting agents are good examples).

Passing trade

Some businesses rely heavily on ‘passing trade’; that is, trade conducted as a result of a casual encounter, where the client did not initially intend to purchase the goods or services.

Many shops are dependent upon passing trade, and will need to be located on high streets and in other areas where their window displays can draw in potential customers. This is not always true, though; some niche shops, such as independent or second-hand book stores, can enjoy repeat business from collectors, enthusiasts and students, and may be able to trade in less busy areas.

Planning law

You might need to alter your chosen property in order to render it suitable for your business needs. Depending on the usage class of the premises, you might require permission from the local council to do so – so always be sure to check for planning restrictions before you make a purchase.

Find out more about planning law at the GOV.UK planning portal.

Summary


Again, choosing a commercial property is all about balance, as there are pros and cons to every option. The benefits of being in a city centre location can be offset by noise pollution, congestion and cost, whilst a tranquil rural environment might be more difficult for customers, employees and suppliers to get to.

It is often wise to consider what is absolutely crucial for your business success before figuring out where you can stand to make compromises; this way, choosing the perfect location for your premises can become significantly easier.


Written by Ben Gosling for Commercial Trust Ltd.


References
1. “Response to the consultation on the proposed cost increase to the congestion charging scheme” London Chamber of Commerce and Industry. Feb 2005.
2. “Central London congestion charging: impacts monitoring”. Transport for London. Jun 2006.

Rising rents now putting pressure on companies

It has been revealed the well-known London restaurant, The Criterion, has entered administration, 140 years since it opened.

The reason behind this decision was the landlord’s demand of a 60% rise in rent, from £525,000 to £850,000 a year. The company had been unable to meet this and so sought advice from Kubik. 

The company stated, “It was decided that Administration was the most viable option as it allows the business to continue to trade as normal whilst the administrators market the business for sale.”

The Bewl Water Sailing Club, published earlier today, also had to close due to expensive rent.  At KSA Group, we have received a few calls about increasing rent/rates costs causing financial problems. Changes last year to the seizure of goods process made the whole procedure more transparent, giving extra time for struggling business to pay back debt. 

Once a Notice of Enforcement is issued, the debtor has seven days to pay back monies owed before bailiffs can take control of goods. 

In the case of rent arrears, the commercial rent arrears recovery procedure (CRAR) kicks into action if rent payments are missed and the landlord wishes to take action. 

Of course, it's rare that a rent increase is the root cause for a company's problems. Rent rises, especially with regard to high street locations, should reflect the value of the area where they are situated, which is a function of the likely income. However, the restaurant business is particularly fickle and just being in a good location is not enough by a long way. We do not know the full details of the lease so it is hard to be sure what happened.

Business rates overhaul urged by British Retail Consortium

The British Retail Consortium (BRC) has been sounding the alarm bells over business rates as it reveals that 80,000 shops may not be able to renew their leases when they come up for renewal.  Of course, the main pressure on retailers is the growth of internet shopping and other consumer habits.  However, the business rates system has not been reformed for decades and many small independent stores face very high bills that they say do not reflect the demand for the retail space they are occupying.  In some cases business rates are higher than the actual rent that retailers pay.  This is because they are based on valuations many years ago and they are linked to the Retail Price Index (RPI) instead of the Consumer Price Index (CPI).  The RPI has lost most of its credibility among economists as a measure or benchmark.

The BRC are not the only ones calling for reform.  The Confederation of British Industry (CBI) also believes it is holding back business investment.  They want to see more frequent revaluations, exemptions for smaller properties and for rises to be linked to CPI.

The problem facing all small businesses is that the rates are now the sixth largest revenue generator, contributing £28bn to the treasury, so almost as much as council tax - it is going to be hard to see any real reductions. 

This is especially so, given that the government has pledged not to increase taxes in this parliament.  George Osborne has promised a review of rates starting in the Autumn Statement but he has indicated that it will need to be “fiscally neutral”. This implies that not much reform is likely but perhaps a nod to the hard working small shop owners.

Seminar on Alternative Lending Review

Our latest seminar was held in conjunction with the Turnaround Management Association (TMA) about the Alternative Lending Market. We had over 90 in attendance which was great news but in some ways not surprising given the explosive growth in alternative lending. 

Speaking at the event was Chris Hardy of Close Brothers, Robert Jackson from ArchOver, Anthony Carty of Pension Led Funding and Keith Steven of KSA Group. Jonathan Reeves, as always, acted as compere for the evening.   Presentations were kept short to ensure there was more time for questions and of course networking, canapés and a couple glasses of wine or beer! 

The common themes running throughout the seminar was how the economy is doing well and how alternative lending is certainly helping some companies to grow as the banks have held back. People will always find imaginative ways to get their hands on money!  However, additional regulation may be on its way. There will also always be a place for more traditional finance such as asset based lending even if they source some of the original funds from "crowds"



What triggers administration and who can appoint an administrator?

Administration is a formal insolvency procedure whereby control of the business is taken over by administrators. Depending on the severity of the company’s situation, administrators may look to turnaround options or selling the business and its assets.

Reasons for a company going into administration

Often, administrators are called in when the business is suffering significant cash flow problems, perhaps due to falling revenue or loss of contracts. If creditors are threatening legal action for unpaid debt, administration can serve as a ring-fence around the business and protect the business while a solution is sought. 

So who can appoint an administrator?

Usually, directors of the distressed company appoint an administrator or insolvency practitioner themselves. Directors can serve a Notice of Intention to Appoint to stop a winding up petition from creditors if there is an immediate threat. 

Some secured creditors, for example a bank or qualified floating charge holder, can also appoint an administrator. All other creditors who are owed money (over £750) can’t appoint an administrator but can issue a winding up petition. This is usually the last resort to retrieve debt. Statutory demands and county court judgements are often the first port of call. 

Is it worth looking at other options?

Again, this depends on the company’s situation but it’s worth looking at all the options before deciding on administration. Administration may not be cost-effective if the business only needs some help with paying back tax to HMRC. 

A time to pay deal and a company voluntary arrangement are rescue methods that help with paying back debt over a set period of time, while the directors continue to run the company. Alternatively, if directors feel the business is no longer viable and wish to cease trading, creditors voluntary liquidation could be the best option. 

If you would like some advice, call us on 0800 9700539 and an adviser can talk you through the options for your business. 

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