The Economics of Space: Buying vs. Leasing
Any business that outgrows its office space or needs to relocate inevitably must weigh the benefits of buying vs. leasing. The real estate market has shot up dramatically in the past couple of years. And while the economy remains somewhat sluggish, interest rates hover at historic lows. As you decide whether to rent or own, it is important to look beyond the market conditions at the specific needs of your business in the short and long term.
Property typically appreciates in value and can be a great investment over time, but ownership has financial challenges and management responsibilities that you can avoid by leasing. Both options have advantages and disadvantages that may affect relationships between owners and the fiscal health of your business.
To Rent or Own?
Whether you build from scratch or find a preexisting space that suits your business, you will have the most control if you own the property and are not bound by the constraints of a lease. Landlords often limit the ways in which a space can be altered, and these restrictions can be frustrating for companies anticipating or experiencing growth. One compromise scenario is to lease unfinished space with the potential to design and build the interior to suit your business’s needs.
Leasing also offers the flexibility of a short-term commitment if you feel your space needs may change several years from now. Property ownership carries more financial risk. Real estate is a relatively illiquid asset and subject to market fluctuations. Needing to sell in a soft market could be costly. Or, if you rely on income from leasing, you become subject to occupancy risk. Should you own in an area with a glut of commercial space available, it may be difficult to rely on tenant income.
Many landlords use rental income to cover property management and maintenance costs. If you are a tenant, you are free from these responsibilities, but pay for operating expenses— this is in addition to any profit the landlord builds into the rent. If you are an owner, you are responsible for the “landlord duties” but avoid leasing overhead. Long term, owning property has significantly greater financial potential than leasing. However, in the short term, renting has its advantages, the most immediate being the lower initial outlay of cash. The cost of several months’ rent and a security deposit is generally easier on cash flow than a substantial down payment for property or an outright purchase. For tax purposes, rent is deductible as a business expense. The tax benefits for property ownership occur over time and may include annual depreciation and interest- paid deductions.
A Few Ownership Considerations
For small business owners, the real estate equity that accumulates over time can lead to valuable planning options, but there are also important considerations if you share ownership of your business. Depending on the structure of ownership, complex valuation and buy-out issues may result when partners leave or retire. In certain instances, the company could be at risk. For example, suppose a retiring partner wants to cash in on his or her equity interest as a source of retirement income. Without prior planning, this demand could place a significant financial burden on the company. The best choice regarding buying or leasing will depend on many factors, particularly your company’s short- and long-term objectives. As property values increase, owning commercial real estate could be good for you and your business, but preparation is key. Seek the appropriate tax, legal, and financial professionals for specific guidance.
Important Guidelines for Employment Recordkeeping
Given the day-to-day demands of running a business, paperwork and filing can quickly become last on a list of priorities. But, good recordkeeping can help minimize your risk in the highly regulated arena of employment. There are many federal and state regulations regarding how long certain records must be kept in order to protect an employee’s privacy, meet auditing standards, and serve as documentation in the event of a lawsuit. With an organized approach, you can minimize the time spent on paperwork and more easily ensure you are complying with standard employment practices.
Many federal employment laws were enacted to protect employees from discrimination in the workplace. Small businesses with fewer than 15 or 20 employees may be exempt from certain rules. Even companies not subject to Equal Employment Opportunity (EEO) regulations because of their size should consider following these federal guidelines. In the event an employee or former employee takes legal action, failure to keep proper records could hurt your defense during litigation. At some point, the onus may be on you to prove that your employment practices are lawful and comply with federal regulations. Without substantive documentation, this may be difficult, if not impossible.
In short, EEO regulations stipulate that employers should preserve all employment records for one year. Records for employees who are involuntarily terminated should be preserved for at least one year following the date of termination. If action is taken against you, keep all relevant records until the charges are resolved.
ADEA, FMLA, FLSA, and EPA Regulations
In order to comply with the Age Discrimination in Employment Act (ADEA), the following records should be kept for three years: payroll documentation that includes an employee’s name, address, age, occupation, pay rate, and weekly compensation. The employer should also preserve records of an employee’s benefit plan with information regarding seniority and merit systems while the plan is in effect and for one year following its termination.
Information regarding employees and the Family and Medical Leave Act (FMLA) should also be kept for three years, including: payroll records, dates and hours of FMLA leave, employer policies and procedures, and any pertinent medical information. For recordkeeping purposes regarding the Fair Labor Standards Act (FLSA) and the Equal Pay Act (EPA), it is also important to keep payroll records for three years, as well as information regarding wages, rates, contracts, job descriptions, merit and seniority systems, and collective bargaining agreements for two years.
What Else and for How Long?
Hiring information such as records and any relevant procedures should be kept for two years and employee applications for one year. If you use independent contractors, keep the contracts and their insurance information, plus all employment- related tax information for four years from the tax due date.
Workers compensation regulations vary by state, so check with the appropriate state agency for more information on full compliance. If you have an affirmative action plan, keep the plan summary and any relevant records for at least two years from any affiliated action, or an indefinite length of time.
Apart from federal regulations, an employer will have to consider whether to keep records for a longer period of time than required in case of a lawsuit. An illustration of this lies in the case of Anderson v. Mt. Clemens Pottery Co., (1945) 328 U.S. 680, 90 L. Ed 1515. In this case, employees alleged that they worked more hours than they received compensation for, but the employer could not produce hourly work documentation. The court ruled that although the burden of proof lies on the employees, the procurement of such records may be beyond the employees’ capabilities; therefore, they only had to provide evidence giving “just and reasonable inference.” In today’s litigious world anything can be alleged. Complying with state and federal regulations can help protect your company’s interests.
Leadership: Building Stronger Companies
Motivating the people in your company to perform at top levels is most likely an ongoing objective. Once you attract the best and the brightest, the challenge becomes keeping them and effectively utilizing their skills to enhance and grow your business. Competitive benefits and compensation are great retention tools, but what about influences that transcend an individual’s bottom line, like leadership? As a strong leader, you can enhance both commitment and performance, as well as define the work culture of your company.
Leadership plays an essential role in all successful organizations, from governments to Fortune 500 companies to baseball’s World Series champions. And, it has a place in your business. Professionals who are highly skilled rarely benefit from heavy-handed management, but strong leadership can inspire them. And with motivated people working with you, you position yourself to more effectively sustain your daily operations and affect positive change for the future of your company.
Charisma is often the most notable trait of a leader, but not necessarily the most effective. You may achieve powerful results by tapping the following qualities:
- Vision. Defining shortand long-term objectives establishes direction for the business. When you communicate your vision, you create a culture of inclusion. People feel they have a stake in the future, and a role to play in the company’s success. In this atmosphere, it is much easier to tap your human resources and develop strategies to accomplish your goals.
- Humility. While leaders benefit from having confidence in their abilities, arrogance can have an eroding effect on morale. In contrast, humility cultivates respect and fosters an environment where self-interest takes a backseat to shared objectives, where one person’s accomplishments are everyone’s success.
- Integrity. It is easier to motivate people when they trust your motives. One of the best ways to lead is by example, holding yourself to the same standards you set for others. People tend to thrive when they feel supported, when they feel you are rooting for their success rather than waiting for their failure. Make a concerted effort to acknowledge the contributions of others, maintain a consistent sense of fairness, and take responsibility for your actions and decisions. Leadership styles vary, and successful strategies will run the gamut from business to business. The challenge often lies in recognizing and addressing the psychological aspects of the workplace. Energizing and mobilizing the people in your company with strong leadership will inevitably have a favorable impact on profitability and growth.
Reform Broadens Options for Investigating Employee Misconduct
The federal Fair and Accurate Credit Transactions Act of 2003 (FACTA) relaxes the rules governing employer investigations of employees accused of misconduct such as discrimination, sexual harassment, and violence in the workplace, etc. Businesses may now hire an outside firm to investigate allegations of employee misconduct without receiving the accused employee’s written consent for the investigation.
Prior to this legislative reform, employers were bound by the Fair Credit Reporting Act (FCRA), which required businesses to comply with stricter privacy regulations and often put small businesses lacking internal expertise at a disadvantage to comprehensively look into charges. In addition to acquiring written consent for outside investigations, companies needed to provide accused employees with the investigation reports and the names of those interviewed regarding the charges. Now, businesses are only required to provide a report when adverse action is taken and, furthermore, may withhold the names of interviewed sources.