Micro businesses in Australia are growing at a phenomenal rate due to the ease of business registration and financial support provided by the Federal Government. According to the Australian Bureau of Statistics (ABS), the number of actively trading businesses had increased by 1% from June 2014 to June 2015 to 2,121,235 businesses. In a 2012 report published by the Department of Industry, Innovation, Science, Research and Tertiary Education, micro businesses account for 23.9% of total businesses, more than small businesses at 10.8%.
The ABS defines a small business as an actively trading business with 0 to 19 employees while a micro business is a small business with 0 to 4 employees. As micro businesses grow, a micro business may lease out commercial premises to operate their business. This article sets out what micro businesses should take into consideration if they wish to expand to a physical location.
Types of Commercial Premises
Many micro businesses commence their operations with online models, such as online retail or online training. As businesses expand and your team grows, working out of a co-working space, garage or home may no longer be suitable. You should consider the type of commercial premises depending on your industry and business function.
For example, a business manufacturing and selling products may prioritise warehousing, manufacturing and storage facilities, as well as retail location, over a shared commercial hub. On the other hand, an arts and craft boutique may be more suited for a market stall or pop-up business.
It is important to take note that there is a distinction between a retail lease and a commercial lease. A commercial lease is a formal agreement between a landlord of a commercial property and a tenant looking to conduct business on the property. A retail lease is a commercial lease that is used for retail shop businesses. Each state and territory have specific legislation that sets out retail lease obligations.
When growing your business, an important consideration is whether you wish to purchase a commercial property, or enter a commercial lease. If you are entering a commercial lease, ensure you have the lease reviewed by a lawyer who understands leasing legislation in your state or territory. A leasing lawyer will also review that your leasing arrangement is suitable for your microbusiness, including the use of the premises and outgoings of the lease. As many leases are 5 or 10 years in length, you should not risk entering a leasing arrangement that has not been independently reviewed.
Micro businesses looking to enter a lease in a retail shopping centre will be regulated by retail premises legislation of the respective state or territory. While microbusinesses may scale quickly in their first few years, many businesses do ultimately fail. As lease contracts are often for five years (and may run up to 25 years), you need to understand your responsibilities as a tenant.