Expanding a business? Think about the where before the when and the how 

Eugene O'Sullivan discusses the things to consider for the location of your premises when expanding a business.

Expanding a business isn’t a one-step process, but it does take a leap into the relative unknown. Often it starts with the acknowledgment that the business would work more efficiently if there were more staff to carry out the jobs, with junior and/or senior employees to spread the work around as required.

And expansion of numbers usually comes hand-in-hand with expansion in space, because, as a rule, those new staff need somewhere to sit.

Or perhaps the push for new premises is not a result of moving from a small office to a large one, but the opening of a new office, an additional site, taking advantage of a new area or region from which to do business.

So what should you consider when expanding the business in terms of location?

Obviously financial considerations are paramount when opening new offices. The future profits need to accommodate not only any new salaries, but the new rent and other outgoings. For professional services such as solicitors, there may be a confidence that entry into a new area, town, or even village, will result in new clients. However, for all businesses, account must be taken of the local competition. Are there established local businesses that offer a similar service? Is there enough of a customer/client base to serve another such business?

This kind of assessment is vital for a retail/shop front business, and there are lots of creative ways to think about where to be based. Pop-up shops are a recent phenomenon that would allow you to ‘try out’ different locations, by renting a cheap, temporary area, either alone or in partnership with a similar-size business. With a good business plan and a long-term vision, and advice from an agent on the benefits of different locations, finding the right place for a shop can be done.

Pop-up options

An office-based (as opposed to retail) business may want to consider the equivalent of a pop-up shop, in the form of serviced offices. While moving from one to another serviced office on a regular basis is not to be advised because of the need for consistency and smooth running of the business, a serviced office is an ideal way of settling in to a new area without committing to a long-term lease. The temporary nature of serviced offices, which include in the rent the costs of facilities and services (eg reception and cleaning), means that you can take your time in finding the right premises, as rushing into a decision can lead to costly mistakes. The flexibility of a serviced office allows month-to-month rental, and the ability to increase or decrease square footage. This is an advantage to the expanding business, when the final number of new staff will take some time to ascertain.

When considering location, it is also vital to consider the ‘virtual’ competition. For many customers and clients, physical proximity is no longer a priority. In people’s busy lives they often want to communicate by email, and office location and appearance is irrelevant. How important will situation and aesthetics be to your business? Can a simpler, cheaper premises be sought and additional money be spent on web-based interface and technology, if you are in a sector that operates wholly online?

When choosing a new office for an expanding business, care needs to be taken to examine all aspects of the outgoings. With attention to detail, it is possible that cost savings can be achieved by moving to an efficient and work-friendly premises. For example, a small office in a converted building 100 years old or more is likely to lead to higher outgoings in heating, lighting, insurance, IT maintenance and possibly initial fit-out. It is highly advisable to look at all the alternatives available, and keep an open mind. Even if you prefer the look and feel of an older building, you may find that a new, open plan office with everything already business-centred is an attractive and sensible option. Don’t forget the rates as part of the outgoings. Speak to an agent and take their advice. There has been no rates evaluation for some years now, so choosing an area with cheap rates may be fine in the short term… until the next evaluation, when many once-unpopular but now highly in-demand areas are likely to see a hike upwards in business rates.

Get out of town

For some businesses it is possible, with a careful choice of location and a willingness to investigate every option, to make cost savings while increasing space for the business. The move from city centre to out-of-town sites is a trend that has emerged over the last few years, and one that crosses all sectors and all size of business. Many global businesses have seen the benefit of shutting up shop in expensive, crowded city-centre buildings and transferring some or all of their staff to purpose-built offices on business and industrial parks, where competitive rents can be achieved as well as cheaper ongoing running costs.

Such a move may, however, have other implications for a small-scale business. An employer of hundreds of people can call the shots in terms of location; a small enterprise with a close-knit group of staff needs to consider the opinions of its employees. If the new premises are too far, too hard to get to, or will increase commuting time, the move may be a false economy: the loss of staff and recruitment and training of replacements can be an expensive business, especially if the staff have clients who follow them to their next job. With a small number of staff, it is a good idea to involve everyone in discussions about new premises. In this way the team can take ownership of the decision and feel part of the future of the business; this particularly important if there is a profit-related pay scheme, and expansion into new premises will affect profits, and hence people’s salaries. Some forward-thinking mega-businesses still keep this personal touch and involvement, allowing staff to design their own office space and inviting proposals for communal area design.

Eugene O’Sullivan is a commercial property expert, and director of London tenant agent Morgan Pryce

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