Commercial Real Estate: How to Buy Big When Your Business is Small

Commercial Real Estate: How to Buy Big When Your Business is Small

Small businesses come in many sizes, offer different goods and services, and operate out of all sorts of spaces. Some conduct business out of the home while others share rented office space or temporary locations. If you decide that you have outgrown your existing place and are looking for a bigger, more long-term solution, there are things to consider before buying commercial space. A small business attorney will help you with all of your real estate decisions from taxes and insurance to location and protection. This post will discuss how to determine if your small business is ready for the transition to commercial real estate and how to secure the financing you need to make the purchase.

Five Questions Before You Make a Real Estate Investment

What is commercial real estate?
Commercial real estate refers to buildings or land intended to generate a profit. It can be divided into several categories, including office buildings, industrial, retail, restaurant, multifamily, undeveloped land, and more. Each type of commercial property is subject to numerous laws – contract, insurance, disclosure, landlord/tenant, and others – as well as Colorado state zoning and land use regulations.

How long have you been in business?
You are a well-established business in your neighborhood or district, and you have no plans to leave the area. Perhaps the space you have been renting suits your business, or you have found a great location nearby. Buying seems like a good idea, but even if you have been in business for 10 years, lenders will want to see that you have been profitable for at least the past few years.

What are your future goals for the business?
Be sure to align your business plans with your location. If you overestimate how quickly your business will grow, you may find yourself with too much space and a hefty mortgage. If you underestimate the potential success of your business in its new location, you may be unable to make necessary renovations and outgrow the space too soon. These two scenarios could be a big problem if the real estate market is down compared to when you originally purchased the property.

Will you benefit tax-wise from commercial property ownership?
If you are a C corporation (C corp) with 40 owners, it may not make as much sense to own the real estate as it does for a mom-n-pop limited liability corporation (LLC) that will benefit more from ownership. Talk with your small business attorney to determine if your business structure is the right one, especially for tax purposes.

Should you change your business structure?
The structure of your business will not only affect your tax obligations and liability, but it may also affect your ability to secure financing. As a sole proprietor, you are responsible for all debts and obligations, which is a deterrent to some investors. With an LLC, there is no limit to the number of owners; whereas, an s corporation is limited to 100 owners. C corporations are attractive to venture capitalists because of the unlimited number of owners and because there is no income tax liability. There are several other options for small businesses to secure financing.

Five Ways to Buy Real Estate as a Small Business

Small Business Association (SBA) Loans
SBA loans come in two types – the 7 (a) and the CDC/504. The 7(a) is a 90% government guaranteed bank loan, and the CDC/504 is a 50% first loan from a back and a 40% second loan from the government. SBA loans offer fixed interest rates, small down payments, the ability to finance building improvements, and a variety of lending sources. However, there is a lot of paperwork, employment criteria, and strict onsite occupancy rules.

Bank Loans
These conventional loans are not as simple as they used to be. There are fewer commercial banks, and even those prefer SBA originated loans because the government backs a percentage of it. If you can afford a larger down payment and are in good standing with your bank, you may secure a loan with less underwriting criteria and more flexibility in repayment.

Seller Financing
This is a direct seller to buyer arrangement. When sellers own a building outright, they can offer better interest rates than other lenders. Seller loans are even more flexible because you are dealing with an individual. While they are not as common as they used to be, these loans often entail fewer fees and a lot less paperwork

Third-Party Financing
Much like seller financing, third-party financing does not come with as many stringent rules as bank loans. Although we do not all have a relative or close friend with a million dollars they would like to loan to our business, these loans can be made quickly without the same environmental or appraisal requirements other lenders would have. There are drawbacks, of course, as no one wants to drain their grandmother’s nest egg or have to endure a foreclosure experience with someone you know or love.

Purchasing the Building for Cash
Probably the most elusive way to buy today, paying for a property in cash is also the most simple. You could buy the property as a sole proprietor or LLC, the lease it to your company. If you can truly afford to do this, be sure you are not sinking 100% of your available cash into the real estate. One of the biggest benefits of this method is that you can charge your business rent, which puts cash back into your pocket.

When it is time to establish or expand your business by moving to a commercial space, your small business attorney will ensure you are prepared for the process in order to ease the transition and maximize the benefits.

If you need help with commercial real estate law, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Why Your Small Business is Just the Right Size

Why Your Small Business is Just the Right Size

Many business owners, who start small, dream of huge success and growth. However, higher profits and expansion do no mean the end of your small business status or the control you have over the product/service you set out to provide. With a broad definition and many variables, a small business may be classified as a company with under $7 million in sales and up to 500 or more employees. Basically, there is plenty of room to grow while remaining a small business. Choosing the best business structure is critical to the success of your small business regardless of your future goals. A small business attorney will help you with every aspect of your business formation and transformation. This post will discuss the benefits of being labeled “small” and review the most common types of business structure for small businesses.

3 Small Business Benefits

As a Small Business Owner, You Are in Good Company

According to the U.S. Census Bureau, there are nearly 30 million small businesses in America. In Colorado, small businesses make up 97 percent of all businesses. A Wall Street Journal article says “small business is big business,” citing that small business employs about half of the people in the workforce and accounts for 86 percent of companies with 500 or more employees. Technology has streamlined everything from bookkeeping and payroll to staffing and marketing, making it possible for small business owners to operate like big corporations. While hefty competition is viewed as a deterrent to some, others see marketplace opportunity and a culture of collaboration.

You Can Find Your Niche

The limitation in scope and reach for some small businesses lends itself to niche marketing. Your small business enables you to focus on a portion of the market that other businesses overlook. This gives you opportunities for specialization and integration into your community. As Denver has experienced an influx of migrating millennials, niche products and services are in demand more than ever. This is a generation that monitors and shares via social media on a daily basis and, in turn, shapes and influences where people shop, eat, and buy.

You are Creating Your Legacy

Perhaps this is why you started your small business – to not only provide for your family, but to leave something for them, whether it be the actual business or the values it embodied. Staying “small” can also afford you more time with the people who matter most and opportunities to engage with the community where you live and work.

Start your Small Business Right – Business Entity Formation

Each of the three most common business structures has its own characteristics and limitations, affecting your liability, taxes, and income. As these have been covered in previous blog posts, here is a brief review.

Sole Proprietorship

One of the most prevalent and simple business forms, a sole proprietorship is an unincorporated business owned by one person. This is an inexpensive and informal way to conduct a small business. A freelance photographer or someone who handcrafts jewelry, for example, would be considered sole proprietors. The main drawback is that you assume full personal liability for your business.

Partnership

When there are two or more partners who own the business, it is a partnership. This can be a husband and wife who share everything equally (general partnership), or it can be you and a friend who only contributes and receives partial profit (limited partnership). As with sole proprietorships, there is more flexibility and control than in a corporation as partners are able to define their relationship and roles. Partnerships, however, have more ability to raise capital than a proprietorship.

Corporation

A corporation is a legal entity that is independent of its owners and has its own legal rights. There are different types of corporations (C corp, S corp, B corp), and even a sole proprietor can incorporate. In a corporate limited liability, shareholders are only at risk for the amount of money or other investment they make in the corporation. Investors are willing to invest in a corporation more than any other type of business organization because of the ability to protect personal assets from the creditors of a corporation. There are restrictions associated with the different corporations, and not all small businesses qualify for each type.

Your Denver-based small business attorney will help you select the right structure for your small business today and ensure it is still working for you in the future. If you need help with your business formation, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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How to Start Your Business Off On the Right Foot

How to Start Your Business Off On the Right Foot

Before you decide on a location, design a logo, or pick out furnishings, it is crucial to choose the right business structure for your small business. This decision will greatly affect your daily operations, impacting everything from liability and taxes to the amount of paperwork and control you have over your own business. There are numerous forms, or structures, each with their own benefits and drawbacks and some with overlapping characteristics. An experienced business attorney will explain the pros and cons and help you determine which structure is the most appropriate for your Colorado business and financial goals. This post will explore four of the most common business structures. According to the Internal Revenue Service (IRS), these are Sole Proprietorship, General Partnership, Corporation, and Limited Liability Company (LLC).

1. Sole Proprietorship

The most basic of business structures, sole proprietorship is used by more than 70 percent of businesses in the U.S. according to the Small Business Administration. With this structure, you are responsible for all of your business’s profits and debts. You are also personally liable for everything that the “business” does as you are the business.

2. General Partnership

Two or more individuals own the business in a general partnership. Most times, partnerships are general partnership in which everything is shared based on the ownership of each partner. Partnerships may also be set up as limited partnerships, limited liability partnership, or a limited liability limited partnership. With general partnerships, all partners have personal liability for what the partnership does.

3. Corporation

A corporation is an entity that is separate from its owners, meaning it has limited liability. It is independent with its own legal rights (e.g. ability to sue, be sued, own and sell property and stocks, etc.). Most household names, like Coca-Cola, Microsoft, and Google, are corporations. There are two ways that corporations can be taxed (C corporations and S corporations) so many people will refer to their corporation by its tax structure rather than just a corporation.

4. Limited Liability Company (LLC)

LLCs have been seen as a hybrid of partnerships and corporations. Their owners are called “members”. They can be taxed multiple ways leading to being loved by CPAS. LLCs protect members from personal liability for the debts of the business most of the time, provided they have not conducted activities in an illegal, unethical, negligent, or irresponsible manner.

A Closer Look at Business Structure
Choosing the best structure to insulate your business from the beginning is one of the most important decisions you will make. It is easy to become swept up in the commotion of getting your business started, but you have to think about your needs now as well as in the future. Consider what your business might look like once it is well established, if something happens and you are unable to run your business, or if you decide to expand or sell. Although it can be difficult to switch to a different business structure because of strict tax code regulations, you may need to reassess yours down the road.

A sole proprietorship is the simplest business structure to set up, but it can be harder to secure outside funding than it is for a corporation. Corporations have the least amount of personal liability, and partnerships share liability as defined by the type of partnership. For sole proprietors, all profit is personal income and taxed accordingly. The LLC structure prevents double taxation, meaning you are not taxed as a company and as an individual. There are many more distinctions among the various business structures related to taxes, liability, control, funding, licenses, permits, and regulations. You can find more information on choosing your business structure on the Colorado Secretary of State website.

Your small business attorney will explain the distinctions, advantages, and eligibility requirements among the different business structures. After you have selected the right business structure, your attorney can assist you with the following: filing paperwork, keeping records, hiring employee and professional support, determining services and location, maintaining appropriate insurance coverage, and more.

If you need help with your business formation, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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How to Navigate Denver’s Commercial Real Estate Market

How to Navigate Denver’s Commercial Real Estate Market

There may come a time when your small business has outgrown its retail or home office space. This is great news as it means you are ready to expand. It also means you are about to jump into the competitive pool of Denver’s rapidly changing commercial real estate market. With developers scrambling to keep up with demand, every size and type of real estate – from historic manors and Beaux-Arts buildings to factories and warehouses – is being repurposed for trendy niche retailers and giant corporations alike. The average asking lease price for warehouse space in some neighborhoods jumped by more than 50 percent from 2010 to 2015. By the end of 2016, retail development hit its highest levels since 2010 with nearly 1 million square feet under construction according to the CBRE. Without a team of professionals on hand, like larger organizations have, a small business attorney can help you make decisions about location, leasing or buying, tax deductions and compliance, and protecting your assets. Whatever type of retail space, office, or other commercial property you may need for your flourishing business, consider these five helpful tips before you commit to a contract.

  1. Make a New Plan
  2. Choose the Right Location
  3. Decide Whether to Lease or Buy
  4. Have Exit and Dispute Strategies
  5. Know What You are Signing

1. Make a New Plan

Even if you have been in business for years, you need a revised plan for your expansion. Consider your needs versus your budget. Do you have the resources to close on a property or repay a loan? A solid business plan is an important factor for lenders who are considering your loan application. Within your business plan, lenders are looking to see whether you have a marketing strategy – have you considered your competitors? The habits of your targeted customers and neighborhood? A back-up plan to deal with the pitfalls? A small business attorney will help ensure your plans and real estate choices are realistic and the best for your business.

2. Choose the Right Location

When selecting the area or neighborhood for your business, there are many factors to consider. Demographics, surroundings, centrality, visibility, and compatibility with your desired image are a few of the areas you should research before choosing your location. You would also benefit by researching forecasts and trends for the district (e.g. new projects, funding, crime rates, and other public records that may affect your business). It is essential to be aware of the current and potential value of the properties you look at, especially if you are going to buy rather than lease.

3. Decide Whether to Lease or Buy

A storefront or office space can boost your business’s image. Commercial real estate not only provides a dedicated space outside of your home, but it can help with marketing. As with most real estate, buying commercial real estate is more expensive in the short term than leasing, but less expensive over the long term if you intend to stay in the location. While buying gives you more flexibility and an asset to use when financing other parts of your business, it also means you are responsible for all aspects of your property, including maintenance and additional liability. An attorney will help you decide whether leasing or buying is right for your business.

4. Have Exit and Dispute Strategies

It is important to have an exit strategy if your business does not perform as well as anticipated or your plans have simply changed. What if you can no longer afford the property? What if unexpected factors in the area are negatively impacting your business? What if you decide to sell the business? You should be prepared for these types of scenarios as well as any arising disputes. Tenants of commercial property have fewer consumer protections, and leases are binding contracts. To avoid conflict or severe penalties, be sure to have your small business attorney review any lease or purchase contracts before you sign.

5. Know What You are Signing

By this point in the process, you may be fairly familiar with the world of commercial real estate and its accompanying laws: landlord/tenant laws, disclosure laws, zoning laws, contract laws, insurance laws, etc. Leasing or purchasing agreements fall under contract law and can be very confusing. Your attorney will go over these contracts with you line by line until you fully understand what you are signing in order to prevent any surprises or compliance issues in the future.

If you need help with leasing or buying commercial real estate, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Is It Time For Your Home Business To Move Out?

Is It Time For Your Home Business To Move Out?

The rapid pace of Colorado’s economic environment is both alluring and daunting for small business owners. Consistently ranked at the top for everything from best city to live in (Denver) to technology and business, Colorado is not only attracting people, but it is also bringing in major retailers from around the globe. According to the U.S. Census Bureau, Colorado’s population grew by nearly 200,000 between 2014 and 2016, reaching more than 5.5 million. This boom has created a robust business climate and economic opportunities for entrepreneurs of all shapes and sizes. There are nearly 600,000 small business owners in Colorado despite rising real estate and cost of living rates. While you may have started as a home business because of these rising costs, there may come a time when you must expand beyond the home. This post will cover five reasons to move your business into a retail or office space. A small business attorney can help you make the right decisions for the future of your home business whether you stay where you are or move.

Moving your small business outside of the home is a major decision with a host of added expenses. Rent, agreements, utilities, cleaning and maintenance fees, movers, equipment, furniture, gas, taxes, and permits are just some of the overhead costs and regulations that will differ from your home operations. However, there are many benefits. Entrepreneur magazine discusses some of the arguments for giving up your commute to the spare bedroom.

1. A Growing Business Requires More Space

If your business is thriving, you have no doubt experienced some growing pains. Depending on the nature of your product or service, more customers can lead to storage and space issues. This is further complicated if you need additional staff. Unless you are willing and able to renovate your home to accommodate your expanding needs, you will likely have to rent outside space. In some cases, zoning laws prohibit you from having more than one employee in your home business.

2. Rented Space is Perceived as More Professional by Some

Clients may already come to your home office, which can be a bit of a juggling act when you are trying to portray a professional image. There may be a much broader audience you are not reaching – an audience who is deterred by or skeptical of the home setting. For those potential clients, a larger commercial space instills consumer confidence. The increased revenue from this larger client-base should eventually exceed the costs associated with renting outside space.

3. You May Not Want Non-Family Employees in Your Home

Having staff members in your home, especially if you have a large family or young children, may not be ideal. Unless they work virtually, it can even be difficult to hire the type of employee you are looking for. While a casual, flexible atmosphere is enticing to some, others have a bias associated with home business settings.

4. Your Home Has Too Many Distractions

It can be difficult to stay on task. The perks of making your own hours and dress code can also lead to an informal attitude and procrastination. It might take leaving the home to instill a more focused, productive work ethic, especially with piles of laundry or dishes taunting you in the other room. The demands or interruptions from family members will also lessen without your constant physical presence to which they have become accustomed. Moving into a retail or office space could restore your work-life balance.

5. Working Outside of the Home is Stimulating

Humans are social creatures, and working from home can be lonely. Without the stimulation of colleagues or peers, creativity and progress can be stunted. Even if you cannot afford a larger commercial space, co-working spaces provide lower cost options. If you find yourself easily distracted by isolation, overcompensating by doing housework, running errands, or visiting with neighbors, it is time to move out.

In a community of small business owners, networking and support abound for your growing home business. Everyone, including your competitors, want to see you succeed and stay in Colorado. Financing and grant opportunities are available through the U.S. Small Business Administration District Offices, and there are dozens of development centers for small businesses throughout the state. If the future of your business rests on expansion, but you are still not ready to relocate, there are ways to make it work. You are, after all, your own boss and landlord! If you need to hire employees, perhaps you can hire other free agents or ask that they work remotely. Storage facilities may offer a solution to your overrun piles and stacks. Business centers are temporary offices that provide space and amenities, like meeting space, office equipment, and receptionists. A small business attorney will help you decide whether it is best to stay or go and adapt to your changing needs.

If you need help deciding what to do with your home business, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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