Financing the construction of your new office can be fraught with stress, if minuscule planning were conducted on the get-go. So the first lesson is, never forget to plan. The longer the time you spend on this crucial step, the lesser your headaches will be from now and into the future.
To begin, there are all sorts of mortgage schemes for building a new office building and it depends on what you, the business owner have in mind. For example, there is the so-called construction or self-build mortgage. This is the proper terminology when you intend to be your own contractor for the job.
Under this scenario, you will be hiring a construction company and subcontractors to complete the entire undertaking. The mortgage specialist will be the first to tell you that you will need either the progress draw or the completion mortgage. Time to brush up on all the terminologies having to do with propping up your spanking new office facility from the ground up.
Consider The Time Involved
Another thing to bear in mind is that becoming the chief honcho for construction will demand a great deal of your time. You might therefore want to designate an assistant or an employee who can help oversee things for you. If you’re an efficient manager, you will delegate in style with no problems.
The sad reality when a new office suite is under construction is that overall employee productivity tends to go down. Knowing this beforehand can help you avoid the pitfall. The crux of the matter is that no matter how much you will delegate, the construction undertaking can still eat up your precious time.
Do You Have A Contingency Fund?
Part of the planning is setting aside a contingency fund, which should roughly be about 15% of the entire budget. This is one thing you can never go without. Foregoing the allocation will be like doing acrobatics up in the air without a safety net down below.
In construction, anything can happen. No matter how well you plan, changes can creep into the project. Some unforeseen circumstance without funding to back it up may cripple progress. In addition to depending on the inputs of your business accountant, you will need to get your bank’s representative actively involved.
Can Your Business Afford This?
Your banker is likely to be the first to disclose if your enterprise is financially healthy to afford a new building at the point in time. A business plan solely for the purpose of construction will be imperative. Having one can also help you identify opportunities that the new facility may bring. For instance, additional revenue streams may be realized from the building.
This might not be apparent without a thorough look at the new activity and examining it from all angles. Aside from designating yourself as the contractor, another option is to purchase a turn-key office. Under this scenario, you are still looking at a new facility, but you are not the contractor.
In fact, another contractor has designed the property ahead of you, based on his or her own specifications. Going turn-key gives you the rare privilege of not having to invest too much of your time in the construction phase. The property comes ready-made so you can start moving in very quickly.
You might say that it would be next to impossible to find a new structure that meets all your business needs and requirements. However, the ready-made solution does come up. Indeed, there are contractors who build structures like RTW.
For this purpose, the types of mortgage choices are the same as when you are the contractor yourself. However, finding what is known as the “take-out” approach attractive, you will be needing only a completion mortgage. This alternative is similar to buying a new condo or town house.
Finding yourself dead set on self-building despite the presence of other alternatives, the facts must be absolutely clear to you, mortgage-wise. Remember that the bank will be releasing the money in installments. To illustrate, you will initially be loaned the funds to buy the land. The rest of the payments will be spread out at different stages of the construction.
Amid all the financial considerations, your bank needs to be involved from the beginning all the way to the end of the project. You must never make the mistake of getting them involved in the finances later in the game, or else, you and your business will be the ones to suffer the consequences. Finally, avoid last-minute changes at all cost.
These changes are known to cost the heaviest in financing the construction of your new office. If extensive, proper and adequate planning was indeed undertaken, there is no reason why the last minute conundrum will come up in the first place.