Growing Your Business: The Right Space In The Right Place
Whether you’re moving an established business to more suitable quarters, or just starting to look for the right space for a new business venture, you need to analyze space needs, and determine the right space and the right place.
You can lease it or buy it, but the space you create has to be right for the business to grow successfully.
Before Moving Day
Conduct an analysis of what you’ll need and why your current location no longer works. If the office is cramped, or the warehouse is packed to the rafters, determine what you need to keep that business growing.
Space should be a primary consideration. How much space do you need now? How much as your business expands? Choose a location with enough space to grow with the company.
Infrastructure is another important consideration. If you need loading bays, how many? How much warehouse space to accommodate raw materials and finished goods? What about office space? Telephony options? Make a list of “must-haves.”
The location of the space is an essential consideration. Is the neighborhood well-lit and well-travelled? Does the industrial park have its own security team? In business AND personal space, it’s all about location, location, location.
What about the commute? If your team is situated over there and you’re looking at a larger space over here, what does that do to the commute times of your current team? Does the new location provide access to new talent and skill sets? Consider your business’ workforce before moving half-way across the state.
Customers and clients are essential to any expanding business. Some businesses, like restaurants and retail outlets, look for street-side exposure to remind prospects that the company is right there on Main Street. The easier it is for clients and customers to find your company, the easier it’ll be to grow that company.
What kind of image does the new location create? Your financial planning consultancy might not flourish in a strip mall next to a tattoo parlor. What does your new location say about your business? It matters!
Can you save on the rent? A business that’s down-sizing to focus on the current client list may not need space in an expensive industrial park, or you may not need as much warehouse or manufacturing space. In this case, choose a location that costs less each month to expand business margins.
Is the space you’re considering convenient to vendors, suppliers, sub-contractors, and outsources? If you’re considering space out in the boondocks, you may have more difficulty securing the materials needed to run the company.
What are the monthly operational expenses like utilities, local taxes, snow plowing the parking lot, or cooling the office in the middle of a desert? Lowering operational costs grows your business without adding expenses to your bottom line.
Is the new location in a neighborhood that’s in transition? If other businesses are moving out, you might want to ask yourself why? If the neighborhood is “in transition” you might consider looking elsewhere.
Compile a list of “must-haves” and those features your company can live without.
Business Relocation: Consider This
Once you have a general idea of your ideal work space, develop strategies that enhance company operations - especially if you’re looking out of state, or even out of town.
Taxes vary from town to town, state to state. Do the math to ensure your expanded company margins aren’t gobbled up by higher local taxes.
One town over may have a more friendly approach to luring new business. Tax abatements and other incentives can make the difference between moving here, or there.
Your business neighbors can influence perceptions of new clients and customers. Also, it’s not a good idea to move across the street from a more established company in direct competition with your business. That competitor has a head start and, most likely, an established client base that’ll make business expansion more difficult for your company.
Wages should also be an important consideration if you expect to attract the best employees you can afford. The cost of living in different places around the country varies greatly. Make sure your new location has affordable housing, low taxes, good schools, and all of the other features prospective employees will weigh when seeking employment with your business.
Financial incentives, like enterprise zones and business incubator facilities, may be just what you need to discover the perfect location where your business can grow without undue expense, while simultaneously improving the local tax base and employment numbers.
Free trade zones may also be ideal for businesses operating across foreign borders. If your business is strictly local, you won’t derive benefit from a free trade zone, but today, with Internet sales, even the smallest business may develop into a global enterprise. Is foreign trade in your future?
Develop Your List Of “Must-Haves”
With your pre-move analysis complete, put together your list of must-haves. These might include:
- space requirements
- type of structure
- compliant zoning ordinances
- adequate parking for employees, customers or clients
- basic facilities like a kitchen, break room, restrooms, equipment, etc.
- secure Internet connectivity
- expansion flexibility (so you don’t have to move again in 24 months)
- power and utility services to meet your business needs
Your Business Space
How big an office do you need? For which employees?
Figure 175-250 square feet of office space per employee. If you require a reception area, you’ll need space for a receptionist’s work station and a waiting area that’s large enough to handle routine business traffic.
Allow 25-30 square feet per employee for a traditional conference room, and 15 square feet per employee if your conference room is set up like a theater.
Don’t forget other space needs. Records storage, library space, the mail room, hospitality area, equipment storage, raw materials storage, and other space needs specific to your company.
You can divide a large work area into smaller cubicles to house the entire workforce, or keep an open space floor plan to enable employees to collaborate more effectively.
The Cost Factor
After all considerations have been weighed, determine the cost factor - what your business can afford each month for space.
It makes sense to go with the lowest cost option assuming the location is right. Also, weigh cost against prospect exposure. You’ll pay more per square foot for a location in town than one in an out-of-the-way industrial park.
Determine what your business can comfortably afford. Then, start looking at potential work sites for your expanding business.
Get Help From The Pros
Contact a business consultant familiar with real estate. A good place to start is by contacting several realty companies in the areas you’re considering. A business consultant may understand your business but be unfamiliar with local commercial real estate.
You want a knowledgeable professional who understands your business needs as clearly as you do, and a real estate professional who can find the right space and the right place for your company.
Buy Or Lease?
There are pros and cons to both.
When you purchase your work space you immediately add value to your business. You now own commercial real estate so your company just went up in value.
When you buy, you get other advantages.
- Your monthly costs are fixed.
- You enjoy tax deductions for mortgage interest, and certain qualifying expenses associated with commercial operations.
- If you purchase more space than you need, you can develop an additional income stream by renting out that additional space as you “grow into it.”
- Owning your space gives you more control over your surroundings and your space. You can add a new loading bay or expand your parking area when you own your business property.
On the other hand, there’s a down side to owning your space.
- You’ll shell out a large down payment to obtain commercial property - capital that could be used elsewhere.
- You deduct direct workplace expenses through depreciation over 39 years, unlike deducting rental expenses in the year your business incurs those costs.
- You’re there for the long term when you buy, even if you outgrow the space in a few years. Buying adds value, but lessens your business’ flexibility in the years ahead.
- Decreasing real estate prices are common. Property values increase and decrease depending on a variety of factors. You may buy, only to discover that your workspace is worth less this year than last. Now what?
- Leasing business space delivers more freedom to grow. Expand, move, sub-let - read the lease carefully to determine just how flexible you’ll be renting this space over that space.
- When you lease, you won’t need to qualify for a business mortgage loan, simplifying your search for space if your personal or business credit has a few blemishes.
- Leasing also eliminates maintenance costs. When the furnace blows a fuse, you don’t pay for repairs. You call the building’s owner to get things up and running again.
- Conversely, when you lease, you have no control over what the building owner does. Your monthly rent can double when your lease is up. You may not be able to renew a lease. And you aren’t building business equity in leased space.
Before signing on the dotted line, tour numerous commercial properties to get a better feel for the commercial realty market. If you don’t know the average cost per square foot, it’s hard to perform an accurate analysis of site A versus site B.
Always negotiate for better terms if you lease. Empty space is a drain on the building owner’s profits. Find out how long the space has been unoccupied. Find a hungry landlord eager to stop hemorrhaging cash, and negotiate better terms like a rent reduction or a “tenant improvement allowance” to add space features your company needs.
Read the fine print, and the really, really fine print to uncover hidden expenses. Develop a worst case scenario. What would happen if you had to close up shop? How much would it cost you to break your lease in that case?
And last, take your time. This is one of the most critical decisions a business owner will make, whether moving to larger quarters, or just moving in to your first work space. Don’t be rushed, check zoning regs, and do your homework on a commercial rental or purchase.
In the years ahead, you’ll be glad you took the time today to find the right space in the right place for the company’s bright future.