smallbusiness.co.uk: Helping your business think big

Millions of pounds are wasted by UK businesses each year on office space they do not use. There are innumerable companies up and down the country committed to large overheads for office spaces that don’t match their business requirements. Mark Dixon, CEO of Regus, takes a look at business savvy office space alternatives.

When a business is starting up, cost control and cash flow management are key and office space represents a large slice of their fixed costs. But for new businesses, it’s easy to get caught up in the excitement of starting a new enterprise and commit to an office that might not be right for their business needs.

Office space checklist
Before deciding what sort of office space your business needs, there are some key questions you need to answer.

1. Location – do you need to be in the centre of town? Where are your clients located? How important is accessibility, by car and by public transport?
2. Image – how important is it that you present an ‘up-market’ image to your customers? What is the value to your business of having an office in a prestigious building or address?
3. Employee motivation – what impact will the location and conditions of your new office have on your current and future employees?
4. Fit-out requirements – do you need an unfurnished space? What telecoms and IT infrastructure do you need?
5. Ability to expand – how much physical space do you need at present (you can expect to need around 100 sq ft per employee)? How much are you likely to need next year or the year after?
6. Cost and commitment – what are the real costs involved? With leases, how long are you tied in and what are the expected rent reviews?

Expand your home office solution
Many new businesses start up at home. For businesses that are outgrowing the garage or the spare room at home, new premises are not the only option. There is a broad range of virtual office products that could provide the first step in expansion prior to taking on new premises. These include mail-forwarding facilities, call-answering, roaming phone numbers and a host of other options.

The water cooler syndrome
Home-based working is set to increase significantly in all business sectors in the coming years. Yet, it remains difficult to strike a balance between the lifestyle benefits that working from home affords and the productivity benefits that a structured office environment gives. Research has identified that we all still have a basic need for human interaction, the chat at the coffee machine or the water cooler, as our friends in the US say.

Office rental – to lease or to license?
For most small businesses, the up-front capital investment required is a bridge too far in the early days, leaving rental as the preferred route. There are basically two types of office rental agreements available: leases and licenses.

Leases are generally required for longer, fixed-term rental agreements, typically for five years or more, although shorter-term lease options are becoming more widely available, albeit at fairly premium rates. These offices are available furnished or unfurnished and the cost is calculated on a square foot rental basis.

The total cost of occupancy
It may surprise you to know, however, that rent typically accounts for a mere 34 per cent of occupancy costs, according to the Total Cost of Office Survey produced by Actium Consult and Cass Business School in 2003. Other costs include: rates; repairs; insurance; regulatory compliance; dilapidations and exit costs; and other hard and soft facilities management. Many companies overlook these costs as part of a total cost of occupancy at their peril, only to suffer a dent in their profits further down the line.

Provided you have a clear forecast of revenues, costs and business growth over the longer-term (three-five year) period, and need to accommodate more than 20 people, then leasing could prove a cost effective solution for your business. Your business may also need a financial covenant, proof of your financial robustness, to be able to secure a lease. This is usually only available to businesses that have been trading for several years.

If you opt for this route, it is advisable to appoint a RICS qualified commercial property agent to search for properties and negotiate with landlords on your behalf. You should budget for a solicitor to finalise the lease and be aware that there is often a delay of up to 90 days for IT and telecoms if you are equipping an office from scratch.

Usually located inside business centres with a range of facilities and services available, such as meeting rooms, serviced offices offer growing businesses a stepping stone approach rather than jumping in at the deep end. What’s more, there is no up-front capital investment required and no fit-out delay as most serviced offices come fully equipped.

Another key benefit of serviced offices is the cost savings afforded by the short, simple licence agreement as opposed to a traditional lease. Licence agreements are usually only a couple of pages and have simple terms and conditions attached, a bit like a car rental agreement. Traditional leases can vary from 30 to 100 pages, requiring considerable time and money in the form of a solicitor.

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