Small Business Office Space: Top 6 Mistakes to Avoid When Your Business Rents an Office
When you’re looking at small business office space to rent, it’s easy to get caught up in the excitement and make a less-than-prudent decision. Keep these six issues in mind, and you’ll end up in the right space at the right price.
1. Make sure you understand fixed vs. variable expenses
Before you start looking for an office for your business, it’s important to understand the difference between fixed and variable expenses. Variable expenses change from month to month, and include discretionary spending (restaurants, coffee shops, etc.) as well as necessities (gasoline for your vehicle, groceries for the office, etc.). On the other hand, fixed expenses cost the same amount each month and cannot be easily changed.
Your business office rent is a fixed expense: once you commit to a lease, it’s not easy to change things. Sure, you can always sublease your office out, but it’s not easy to do. Look at your actual revenues—not your projected revenues—and consider the rental rate as a percentage of your total revenues. How does it look? Do you really want to be spending that much of your total revenues? And, if your revenues don’t grow as much as you project, will you really want to be committed to that lease payment every month?
2. Don’t overcommit on your lease term
It’s common to see landlords seeking lease terms of three years or more. Three years is a long time, a very long time, for small and medium-sized businesses. Sales go up and down, revenues rise and fall, employees come and go — but your rent payment won’t change, and neither will your contractual obligation!
Recently here in Austin, we’ve seen quite a few property owners offering one-year lease terms because there are so many new companies being started. So keep your eye out, and always ask about shorter terms with the option to extend your lease at the end of the term.
Before you sign on the dotted line, make sure you’re really ready to commit to the lease term.
3. Don’t rent too much space
If you’re careful not to commit to a lease duration that’s too long, then you shouldn’t need to rent more space for projected growth. This serves several really important purposes. First, it means you’re not paying now for space you won’t need until later. Second, it means that you’re not in a bind if your projected growth takes longer than expected, i.e. you won’t waste money on space you don’t actually need. So, take care to agree to a lease term that is right for the stage your company is in; then, rent the amount of space you need now, not the amount of space you think you may need in the future. It’s better to end your lease term at the right time and move into a bigger space then!
4. Should you buy instead of lease? (Think in terms of the total cost, not just monthly payments)
When you’re looking at office spaces, it’s easy to focus on the monthly lease payment because it’s more natural: you’re probably thinking about your company revenues in terms of monthly amounts, and so your instinct is to weigh your monthly lease payment against those revenues. Don’t misinterpret this: yes, it is important to consider your monthly lease payments against your monthly revenues! But, it’s also important to consider the total amount of money you’re going to spend over the term of your lease. Why? Because it will help you consider alternatives.
For example, if you’re thinking about renting an office that costs $4,000 per month over a term of two years, you’re thinking about spending $96,000 on that investment, and it’s a fixed cost that cannot be easily changed. So, is that the best way to spend that $96,000? Or, alternatively, do you have the ability to make a small down payment on a commercial property? If so, there’s a chance your mortgage payment would be less than your lease payment. So, think about the total cost, and consider all your alternatives before signing a lease.
5. Make sure you get as much included in the rent as possible
Rental rates can get pretty confusing—from base rate to triple net—especially if it’s the first time you’ve ever considered renting an office. We suggest you try to find a landlord who will agree to a “full gross” lease, which includes electricity and gas, water and wastewater, and trash collection. You might also find an office that includes other services like alarm service, janitorial, etc. The more services you can get the landlord to include in your single monthly lease rate, the better off you’ll be. You won’t have to sign up for, or manage, these services (and the associated monthly payments), and you’ll be more agile (see the next section!).
6. Stay agile with your office setup
This is incredibly important and so often overlooked by businesses. Remaining agile means that you are not tied to a specific office space in ways that will cost you efficiency and money in the future.
- Use a service like RingCentral for your phone system, so you don’t have to pay an upfront cost for equipment and installation, and you can move at any time without your phone system going down (we use RingCentral at our office and recommend it all the time!).
- Use wireless internet in your office instead of CAT5 ethernet wiring (this is a no-brainer!).
- Search the web for awesome IKEA hacks to get cheap chairs and desks that are easy to move.
- Don’t buy an office server and don’t hire an IT company; instead, use dropbox.com or box.com for your company server.
- Buy computers from one manufacturer (APPLE!) and use laptops if possible.
- Don’t waste money on desktop software like Microsoft Office or Quickbooks—instead, get used to using cloud-based software like Google Apps, Apple iCloud, Quickbooks Online, etc.
- Only buy a printer if you absolutely need one; they break all the time, the ink is insanely expensive, and you can always get a few things printed at Kinko’s if you need them for a meeting or presentation.
- If you have to pay for your alarm service, make sure you can move the account to another address at any time.
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