3 Financial Questions to Answer before Building

Most growing companies experience growing pains at some point. Whether it’s a manufacturing facility, sales office or headquarters location, many companies simply outgrow one or more of their existing facilities. But regardless of how big or small your company is, there are 3 important financial questions you need to answer before embarking on a commercial building project.

Can we expand on current site or will we need to relocate to another site?

Determining whether your company can expand on its current site or will it need to relocate is an important financial question to answer. Depending on your projected growth, you may have enough land at your current location to meet your future building needs.  The ability to renovate or expand an existing building can substantially reduce the financial investment. On the other hand, when you have outgrown your existing space, and/or are leasing multiple commercial properties, constructing a building on another site may prove to be a sound long-term financial decision.

How will we fund the construction project?

The next important financial question to answer is to determine how the construction project will be funded. There are a variety of ways to fund a commercial project including cash, equities, short-term construction loans and long-term commercial financing, or a combination thereof, for example.  The amount of cash on hand, interest rates and your borrowing capacity will ultimately determine the most viable funding option for your construction project. Also, if you are planning to relocate from a leased facility and build your own commercial facility, you will need to weigh the different tax treatments that may apply if you are shifting the property from a liability expense to a depreciable asset on the balance sheet. There may also be other tax and economic development incentives, especially if your new building will be in a redevelopment zone.

How long can we expect this building project to meet our needs?

You will also want to determine if your commercial project is addressing your short-term real estate needs (10 years or less) or if it is planning to meet a long-term solution (more than 10 years). Most companies don’t have the resources like Apple and Facebook that were able to build sprawling headquarters facilities to manage long-term growth into the next century. And based on your financial picture, it may be more feasible to plan a building construction project in 2-phases. The first phase manages your immediate growth for the next 5 to 10 years while the second phase meets future growth projections for the next 10 to 20 years.

As your seeking the answers to these financial questions, it is a good idea to speak with a commercial building contractor. They will be able to provide you with cost estimates along with delivery and financial options that can help get your commercial building project off the ground.