Owning a factory outright or renting one have different advantages and disadvantages. A company must consider which one is suitable to meet your needs the most. Here are some pros and cons to consider:
- Renting a factory requires less capital outlays than owning one. A startup or SME may find renting to be more suitable. Building a factory may require large capital investments and/or larger loans from the onset. Although the ultimate goal could possibly be to own one but that can come later when the business has gained firm footing. Hence, renting a warehouse over buying one is the more viable choice for startups and SME.
- Renting a factory can save time. A startup or SME can usually find plenty of ready-made factory for rent available in the market. Once rental terms and conditions are met, it can start to design and setup production line outlay and installation of required machineries immediately, thereby saving on the time compare with building a new one. Also depending on negotiation, many rent operator offers a one to two month fitting in period.
- Renting can assist in the company’s cashflow management and enhance the company’s liquidity. Since, business has a limited amount of capital, this precious and finite resource must be treated with utmost care and efficiency. To attain a positive or surplus cashflow from operation is a life-line to all business. Hence, to utilize more of the available capital as working capital preserves to meet the daily and monthly demands and to meet customers’ credit term requirement become an important issue that cannot be overlooked.
- Renting a factory offers greater flexibility to adapt to changes in a volatile business environment. When the future is very uncertain, being resilience and having some agility can be helpful to cope with the uncertainty. Hence, not having your capital tied up so much with fixed assets by owning a factory can offer more flexibility when relocating, downsizing or upsizing your operation is required.