Jack Barnes, a technology entrepreneur from San Diego, knew it was time to take his small business to the next level. “The last time I had a client meeting, one of the big bosses ended up sitting on a folding chair in the hallway between my bedroom and bathroom. That's when I knew it was time to make the change.”
But knowing it was time to move out of his home office was the easy part. Jack's next decision was one of the costliest of his small business career. He went out and found himself traditional office space - nicely lit, good building, convenient location, lots of room. Jack was excited. He signed a three year lease. “I thought the future was looking good and things would continue as they had when I was operating from home….I thought, 'What could possibly go wrong?'”
Famous last words. Six months later, Jack was handing out pink slips and buckling under the weight of his monthly rental payments. When I lecture to small business entrepreneurs, I call this section of my talk, “There is no hell like being locked into a long-term lease” because the standard three to five year lease that real estate brokers and landlords want you to sign can be catastrophic for a start-up business.
Of course, they will never tell you this. They are business people, too. They want to buy a flat screen television, feed their families and make their mortgage payments. You can't blame them really. But you must remember they are not your friends. They do not necessarily have your best interests at heart. And worst of all, they may actually believe the space they are selling is a fantastic office for you. They might not be thinking like a small business entrepreneur. They don't know what is good for you. Only you do.
The National Federation of Independent Business' Education Foundation estimates that over the lifetime of a small business, only 39% are truly profitable. Over a ten yearten-year period, more than 64% of these businesses will fail. These are some tough statistics. As an entrepreneur you need to do everything you can to shift the odds in your favor.
Right now, you are working hard and feeling good about your growth, but a lot can happen in a year. You might run into trouble and go bust. If your business starts to struggle after 5, 12, or even 18 months into the lease, you are still legally obligated to continue paying the full rent to the landlord month after month for the entire 3 year term - that's almost 1100 sleepless nights!
And here's the rub - The on-going rent payments for an office you can no longer use or afford will only put your business in a more precarious situation and make it even harder, if not impossible, for you to turn things around.
If you're lucky, you might be able to sublease your space to someone else, assuming your lease and market conditions will permit that, but instead of spending all of your time trying to keep your business afloat, you'll be wasting a lot of time and effort dealing with attorneys and brokers.
And what if after all of your valiant efforts, your business still goes under? Well, as far as your landlord is concerned, you're by no means off the hook since you probably had no choice but to personally guarantee the lease. So now, on top of all of your other problems (like no business, no job, no money), you have a remaining lease obligation of thousands, if not tens of thousands of dollars, hanging over your head.
This is one nightmare scenario. Another is that your business is expanding through the roof. You are turning over product so fast you can hardly keep up. And you are stuck in an office that no longer meets the needs of your burgeoning business. You are stuck in an over-crowded space that restricts your growth and compromises your ability to attract and hire new employees.
You can try to move some of your crew into additional office space nearby, but this kind of split operation can be an organizational nightmare for an expanding company and I've really never seen it work out well.
The solution is, of course, short-term, ready-to-use office space. This is, simply put, an office you can move right into. It is fully equipped, furnished and ready-to-go. It has high-speed Internet access, phone systems, furniture, fully functional conference rooms and in many cases a receptionist to answer the phones.
Real estate brokers typically don't show these spaces because there isn't much money to be made in helping you rent 120 square feet for 6 months. In most cities the commission on that deal would barely cover a nice dinner for two. That means you may never hear about these types of spaces and that's really a shame because it is probably the ideal solution for most start-ups, especially those just moving out of their home office .
These office spaces are available in almost every city and offer small businesses the opportunity to “test drive” a real office space. Entrepreneurs can take out a lease for one month, three months, six months or longer. The point is you get to decide. .Not the real estate broker. Not the property owner. Because only you know what's right for your business. And most importantly, it gives your business another chance to beat the statistics. As for Jack Barnes, he was lucky enough to find someone to sublet his space. He is currently running his business out of an executive suite a mile from his old home office, “I'm renting 2 months at a time and I know my office will grow and change with my business, not vice-versa.”
Jeff Landers is a serial entrepreneur who has worked in commercial real estate since 1974. His company, Offices2share.com, helps small businesses nationwide make the leap from home office to “real” office with simple and cost-efficient alternatives. His advice has helped thousands of small businesses reach the next level of their development. You can reach him at Landers@offices2share.com.
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