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5 Things to Consider When Looking for a New Office for Your Small Business
Posted by Sylvia Lagerquist, CPA
As we launch into the new year, many small business owners begin thinking about future growth and expansion.
And with that comes the question of commercial space, whether it be office space, retail space or warehouse space.
There are a lot of factors that go into selecting the right space to grow your business, some of which are easily forgotten in the midst of a search or during the final stages of negotiations.
Here are five essential things to consider when you look for the next place your small business can call home:
1. Clearly Define Your Priorities
One of the first steps every small business owner should take when preparing to search for a new location is to set down clearly all of the essential priorities that must be addressed. These include the obvious ones, such as cost or square footage, but also the less obvious ones such as factors in choosing the best location; zoning laws applicable to the space; and so forth.
Also, consider the unique factors that apply today or might apply in the future to your business. For example, if you run an internet firm you might need a room with raised flooring and high-capacity air conditioning to support a server array.
If you are in electronics and perform some light manufacturing, you might need to double-check zoning laws and also look for spaces that have reinforced floors and higher-rated electrical service to support some of your assembly equipment. If you run a small publishing firm, all of your production work is probably handled off-site but will you need a small warehouse space or a loading dock to make deliveries and shipments easier? Then there are the human support factors.
These might include the question of how much square footage to set aside for each employee; the mix of private offices, semiprivate cubicles and open desks you want to use; the configuration of your break room; the location and accessibility of restrooms; and the nature of building security and access control for the safety of your after-hours employees.
2. Factor in All of the Costs
It’s hard to keep in mind just how many costs may go into making a new location your business home. Of course, there’s the cost of the space itself (whether in the form of lease payments or mortgage payments).
In addition to that, you need to consider costs typically not included in your rent. For office users, most leases are configured as “Full Service” or gross leases, which means that the lease payments include the costs to the landlord of building upkeep, general maintenance, power, water/sewer, restroom supplies, cleaning of common areas such as hallways and lobbies, etc.
However, some office and industrial leases and most retail leases are organized as “Triple Net” leases (NNN). This refers to the fact that the monthly cost of the lease is net of (i.e. does not include) the cost of property taxes, insurance and maintenance. However, every lease is different and landlords configure leases along a wide variety of formats including hybrids of these two concepts.
In addition, there are other factors that must be considered including, presumably, the cost of your new office phone system, internet and wifi services, office furniture for the new space, and any office equipment (such as an upgraded printer/copier or new computers).
3. Carefully Balance Location vs. Size vs. Cost
One serious challenge facing today’s small business owners is in finding the balance between a cost-effective space and one that is in the best location. If yours is a retail or restaurant business, of course, location is truly everything since nearly your entire go-to-market strategy is predicated upon picking an accessible and visible high-traffic location.
For other kinds of businesses, though, the two key considerations tend to be access to talent and transportation accessibility. If you anticipate growing your headcount, you want to make sure that your location is easy to get to and in a (relatively) desirable location for your target talent audience.
For example, some kinds of workers may greatly appreciate or show a preference for transit-accessible locations, while for others the availability of free on-site parking might be a key priority. If you envision recruiting with one or more key colleges or trade schools, you may benefit from being nearby or adjacent to those institutions as well.
Where things get tricky is when you try to balance all three key priorities of location, size and cost. If you select a space that’s too small, you may find yourself out of space far too early (especially if your lease is for five years or longer, which most commercial leases are). On the other hand, if you choose a space that’s in an ideal location, the cost of that location may make a larger and more growth-friendly footprint cost-prohibitive.
4. Analyze the Question of Lease vs. Buy
Historically, the vast majority of American businesses lease their office or operating facilities. This is for a number of reasons, not the least of which is flexibility and ease in growing or responding to changing space needs in the future. However, in some cases purchasing may make a great deal of sense.
One example is small retail businesses in stable markets, where the risk of leasing is due to anticipated long-term increases in property values that could push the business out of its current location and make future leases in any nearby setting cost-prohibitive. Another example is if an office condominium is available and a business does not anticipate pursuing significant growth and expansion in the future.
If you do choose to buy, of course, you’ll need considerable cash for a down payment and maintenance and upkeep will be your burdens to bear. It’s also important to consider whether your business will be a highly sellable asset in the future, or whether real estate is really your better point of focus for wealth accumulation.
For example, many doctors struggle to sell their medical practices since such businesses are closely tied to the physician’s own patient relationships and fewer doctors today are pursuing private practice. However, the office in which the practice operates may generate significant equity over time, and could become a major contributor to the owner’s retirement strategy.
5. Consider Nontraditional Options
It’s also important to know about the increasingly wide range of options for selecting office space in today’s environment. In the past, you were generally left with one option outside of buying a space: the traditional lease.
Today, a far wider array of possibilities is available including serviced offices, coworking centers and incubators or accelerators. A serviced office is typically a traditional office space that has been rented and subdivided by one company, then configured to be subleased to multiple other businesses.
Common services provided in the space may include receptionist support, a break room, cleaning services, copiers/printers and phone/IT support as well as standard office furnishings. These serviced offices provide a ‘turnkey’ solution for small businesses in that you can be up-and-running in days, rather than weeks or months.
Coworking centers take a similar approach but tend to focus more on offering fully open or partially open spaces such as open desks, cubicles, workstations, etc. as well as private offices. In both cases, you pay a true ‘full-service’ rate that includes the cost of the lease (or in some jurisdictions, the service or membership agreement) as well as a portion of the costs associated with all of the operational and support services that you are able to access.
Incubators and accelerators provide a similar service format but often tailor these services to a specific kind of business, and may also require a formal application to confirm that that potential tenant business fits with the focus of the center. In some scenarios, incubators and accelerators also provide access to capital or angel investments for early-stage companies.
Choosing where and how to operate your business is one of the single most critical (and costly) investments you can make in the future of your enterprise. Consider these factors and others, and take your time to carefully analyze each option against the standards and priorities you define. Taking time and care now can greatly enhance the long-term value and overall strategic impact of your office space selection and future growth decisions.
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