Buying a warehouse for your business: Will you have enough cash left to keep trading?
Buying a warehouse for your business should leave you with the keys and enough cash to keep the business running.
There is plenty to like about having your own place. It may give you room for the equipment, a loading area that works and the freedom to organise the premises around your business instead of another landlord's lease.
After years of paying rent, buying can feel like a milestone worth reaching.
Then comes the less photogenic part of the purchase: the first wage run after settlement, a supplier asking for payment and a customer who needs another fortnight. Those bills arrive whether the move went smoothly or cost more than expected.
For an Australian business owner, the purchase budget needs to follow the money beyond the day the property changes hands. Having enough for the deposit is one question. Having enough left to trade deserves just as much attention.
The short answer
Budget for the purchase, the move and the first months of ownership.
Keep money for wages, suppliers and existing work separate from the property contribution.
Compare the full cost of occupation with the rent you currently pay.
Test what happens when a customer pays late or the move takes longer.
Clarify which entity owns the property and which business must support the repayments.
Buying a warehouse for your business: The deposit is the beginning
A deposit is a visible target. The rest of the cash commitment tends to arrive in smaller pieces.
Legal work, valuation, inspections, transfer duty, finance fees and insurance may each need funding. Repairs, equipment connections and relocation can add another round of payments. Some fall due before the loan is available.
The government's business-location guidance sets out considerations when comparing premises. Suitability matters alongside price: access, permitted use, power, building condition and the way the business will actually use the space all deserve investigation.
Buying a cheaper building can be an expensive way to discover what your operation needs.
Quotes and professional advice help turn a promising property into a realistic budget. GST treatment and the ownership structure also need transaction-specific accounting and legal advice. An expected tax credit cannot safely be treated as cash available before its timing is established.
The move can leave you paying for two places
The new warehouse may be ready before the old lease is finished. Or the lease may end while repairs and connections at the new property are still being completed.
Either way, the timetable matters to the bank balance.
Allow for overlapping occupancy costs and the practical business of moving stock, machinery and staff. If deliveries slow or trading pauses, the effect belongs in the forecast as well as the moving quote.
Leaving the old premises can bring its own bill. The guide to commercial lease make-good obligations explains why those responsibilities should be checked before the purchase budget is considered complete.
A useful payment schedule gives each item a date and a funding source. That makes an awkward question easier to spot: is a bill due next month being funded with money that will only become available later?
Replacing rent is only part of the comparison
Putting the rent beside an indicative mortgage instalment is an understandable starting point. It is not the whole occupancy budget.
Ownership brings rates, insurance, maintenance and property-related expenditure alongside the loan. Some existing costs disappear, some continue and others change. Your accountant can keep principal repayments visible in the cash forecast even though they are treated differently from expenses in the accounts.
The picture can become harder to follow when one entity owns the warehouse and the trading business pays it rent. The rent is an outgoing in one forecast and a receipt in the other, while responsibility for the property debt sits with the borrower.
The guide to multi-entity business finance explains why those connections need to be clear. A healthy combined total does not establish that cash is available in the entity with the next payment due.
The business still needs its working money
The warehouse may support the next stage of growth. The work already on the books still needs to be delivered this month.
That means money for stock, materials, subcontractors, wages and tax commitments. Customer payment delays and supplier terms affect how much must remain available. The same dollar cannot be both the property deposit and the cash reserved for an existing order.
The working-capital needs guide offers a way to examine that requirement. It helps move the conversation from the balance showing in the account to the money the business can actually afford to commit.
A 13-week cash-flow forecast can show the immediate pressure points. The government's cash-flow statement guidance provides a starting framework for receipts and payments. A longer view can then follow the ongoing cost of ownership.
What the cash left after settlement can really look like
Consider an original hypothetical business with $420,000 of genuinely available cash. Its property contribution and purchase costs total $300,000, leaving $120,000.
At first glance, that may look comfortable.
Moving and overlapping occupancy costs then use $25,000. The balance falls to $95,000. The trading forecast shows that another $70,000 is needed before the next reliable customer receipts, leaving a $25,000 contingency under these assumptions.
Now move a $45,000 customer receipt past that low point. The business needs a response to the gap, even though the property purchase has been completed successfully.
An unused facility might help only if it is available, permitted for the purpose and affordable alongside the other repayments. The figures above are illustrative, exclude unlisted costs and do not prescribe a suitable deposit or cash reserve.
Their value is in showing when the pressure appears. The headline bank balance tells only the first part of the story.
A good finance discussion looks at the property and the trading business
The proposed warehouse loan needs to sit beside the commitments the business already carries. Vehicle finance, equipment payments and working-capital facilities continue to compete for cash unless a confirmed arrangement changes them.
The multiple business loans guide helps bring those payments and security arrangements into one discussion. The government's business-loan application guidance likewise starts with understanding income, expenses, debt and cash flow.
There are two assessments to keep in view. The property must be acceptable for the proposed finance, and the repayment plan must be supportable. A suitable building does not establish that the trading business can meet every commitment.
Before relying on an indicative proposal, clarify the remaining valuation, contribution, insurance and documentation requirements. The legal timetable also needs attention, particularly if the purchase and the end of the existing lease are approaching together.
Give the first months of ownership a place in the plan
The forecast becomes more useful when it includes a slower move, weaker trading or a late customer payment. Those are specific events you can examine, rather than an unexplained contingency percentage.
Any proposed response needs its own reality check. Selling an asset depends on the likely net proceeds and timing. Another facility depends on assessment and availability. Neither should quietly become confirmed money because the budget needs it.
After moving, compare actual occupancy costs and trading receipts with the plan. Separating a one-off relocation bill from an ongoing increase in expenses helps you see what needs attention before the reserve is consumed.
Frequently asked questions
Will buying always improve cash flow compared with renting?
No. The contribution, repayments, property costs and cash retained all matter. Ownership may provide stability while requiring a larger initial cash commitment.
Should the trading company own the warehouse?
That requires legal, tax and accounting advice for your circumstances. Establish the proposed owner, borrower, occupier and guarantors before relying on a funding structure.
How much cash should remain after the purchase?
There is no useful universal amount. Work from existing obligations, the trading cycle, purchase and moving costs, and the setbacks the business could realistically face.
What if the warehouse is right but the timing is tight?
Discuss the contractual position and outstanding steps promptly with your advisers. An extension, alternative facility or finance approval should not be assumed.
The keys should open the next chapter
Owning the warehouse can be an important step for the business. Giving equal attention to the money left afterwards helps ensure the next chapter includes room for wages, suppliers and everyday trading.
Planning a Warehouse Purchase?
Fairlane Finance can help you assess the purchase alongside your business’s operating cash needs.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
