How do you know when you’ve made it? When you have a fancy corner office and a flashy new car, right?
Not always. If your business has enough growth to provide you with a fantastic office, great—you likely don’t need this guide. But for the rest of us in the real world, your first office space can be a big-time commitment, fraught with a laundry list of caveats and challenges.
How do you know when your business is ready for its first office space? We have a few thoughts:
Why Rent an Office?
First things first: is an office really all it’s cracked up to be? In today’s digital world, fewer and fewer entrepreneurs find an office necessary. Here are a few things to consider when looking for reasons to rent an office for your business:
- Face-to-face meetings. In some businesses—like restaurants—you can’t function without a working space. In other businesses—like freelance graphic design—you can get away without meeting your clients in person. What if you find yourself somewhat “in-between”? You have to gauge the value and frequency of your face-to-face meetings.
- Cooperation. It’s not only about the forward-facing side of your business. An office creates a cooperative environment (in the best of cases, at least) in which you can talk out company issues with colleagues in real-time. True; the world of GoToMeeting and Google Hangouts has drastically reduced the need for geographically-fixed cooperation, but in some cases in-person consulting is still essential.
- Concentration and creativity. Having a designated “workspace” also pays dividends in less-quantifiable but equally-valuable terms. If you can swing it, having a place to go to dedicate your focus on a specific project will help reduce and even eliminate distractions while you work.
Some businesses can thrive without a large, dedicated office space to provide them with all of the above. Others need it. It’s
How to Tell When You’re Ready to Rent
If your home-based business has enough cash flow to justify an added expense like an office, then it’s time to ask The Big Question: are you ready to lease? Here are a few ways to tell:
- Having your company’s financial house in order. If you can put together the financial documents, company credit history, and tax returns that demonstrate your ability to make good on any lease you sign, you’re in good shape. If, as Entrepreneur notes, you have to resort to putting up stakes in your own personal financial net worth to secure a lease, you might want to think about reducing the size of the office you’re seeking—or even putting the idea on hold for now.
- Your budget. If you can afford an office space at the very top end of your budget—but leave yourself little wiggle room for anything else—you may want to reconsider. Additional costs in the lease can add up, and when you leave yourself no margin for error, any slowdown in the business cash flow can make it hard to make good on rent.
On the other hand, not every company’s situation is defined by its limitations. If you find that your business is growing faster than you anticipated, it’s possible that you’ll need (at the very least) a new office space to make room for that growth. Just make sure that your company has the cash flow to support its ambitions, just as you would with any long-term financial commitment.
Budgeting for an Office
Have a look at the full lease agreement and multiply its monthly payments by twelve to get a better sense of what to expect an office might cost you across a fiscal year. Renting an office will give you the advantage of not worrying about property taxes and maintenance costs, which is good for businesses that require stable expenditure on a regular basis.
Are there any “Rules of thumb” for how much you should spend on an office? According to Priceonomics, which ran a survey of businesses, the average office uses about 233 square feet of space per employee—although you should allocate more space for any attempts at future growth.
The total amount you should spend on your first business office will depend on your type of business—according to some, a retail space should only try to pay about 5-to-10% of its budget on retail space while businesses like law firms might expect to pay as much as 15%.
In-Between Options—For When You’re Just Not Sure
What if you’ve considered all of the above, run through all your options, and simply still…aren’t quite sure?
There’s good news. There are plenty of “in-between options” for you to consider before making the leap to a full-on office lease:
- Co-working spaces. According to AllWork.space, there are over 14,000 coworking spaces across the world today, with millions of members expected to grow to 5.1 million by 2022. Have a look at Entrepreneur.com’s reasons for and against considering a co-working space for your business.
- Sprucing up your digs. Run your business from home? There’s no reason it all has to “feel” like a home-based business. Tools like Grasshopper make it possible to establish a workable business phone system while Zendesk can give you the digital presence to respond to customers like a big-time office.
- Starting small. There’s no reason you should maximize your office space according to your budget. What’s wrong with coming in under budget and giving yourself more room to grow? Unless you have high personnel demands that require vast amounts of new space, don’t be afraid to start small and give yourself an “out” if need be.
Making the Leap to an Office
Moving from the proverbial business-in-the-garage to a bona fide office can be the single most important milestone of any young business’s life. But it’s not a milestone you need to force ahead of its time. Make sure that you use the appropriate space—both literally and in your budget—before you sign that lease.