5 Reasons Buying Office Space Could Kill Your Business
Have you ever wondered why so many of the Fortune 500, along with an overwhelmingly high percentage of small to mid sized businesses lease or rent office space instead of buying it?
Often times, it’s easy to look at the expense like an individual would look at their home lease and think ‘oh, I’m spending $xxx each month that could be going into equity if I just bought a home instead’. It’s an easy mistake to make, but let me break down why it could be one of the worst decisions you could ever make for your business.
When you buy, you’re committed to one of 3 choices:
- Buy just what you need, and deal with the problem of needing more or less down the road.
- Buy more than you need and hope you grow into it, paying for what you don’t use until then.
- Buy less than you need because that’s what you can afford, and limit your business forever (or until you buy more).
None of these are good options but they’re inherently built into the reality of buying office space. A family home is easy because you typically know how many kids you have (or will have) and your family stays pretty constant. Business doesn’t, and you shouldn’t want it to! You want to grow, and build something with the freedom and flexibility to adapt to the market at any time.
During COVID we’ve seen so many companies hurting at paying for large space they can’t or aren’t using, with no way out and definitely no buyers looking to pay what they’d need to make financial sense. Unless you’re ready to take a loss, which could be large, selling commercial office space or an office condo isn’t something that’s easy.
In a coworking space like WorkLodge, you pay for only what you need today, and add or remove employees as needed, with the flexibility to grow or shrink your office footprint in line with that need. I can’t tell you how many Members have told me how grateful they are that in 2020, we’ve been able to work together to help reduce their monthly expenses while giving them the peace of mind that in less than 24 hours, they can ramp back up when needed.
p.s. We put this first, before cost because it’s even more important. Think about it.
Upfront Costs will be significant when buying. Down payments, appraisals, time, build out, furniture, etc. All these things need to be paid for with real cash. Cash that could be put to better use to grow your business, invest in your local community.
While using up available reserves may sound like there’s little risk, the only thing guaranteed about the future is how uncertain and unpredictable it can be. In an ever changing market, tying up large amounts of resources makes little sense. Then, once moved in you’re responsible for all the ongoing costs, that you’ve maybe never had to think about before like:
- Property Taxes on the building, not just the assets you own (Harris County has a 2.67% tax rate for example meaning you’d be paying approx. $2,000 each MONTH on an $800,000, small office building).
- Maintenance of the building and exterior (parking lot, landscaping etc.).
- Cleaning (your staff won’t keep the place clean, we promise!).
- Keeping (kitchen, restrooms etc.).
- Insurance for the building, not just your liability (this could add thousands per year to your insurance bill).
- Compliance costs (fire code changes etc.)
Even worse than paying for all this is that they change, annually, making it even harder to budget and forecast which is why when we built our pricing model, we designed it to absorb any and ALL surprises, while giving a fixed, predictable pricing structure so you’d always know where you stand today, and where you’ll be tomorrow.
Finally, nothing lasts forever. Those chairs you buy will need to be upgraded. The decor and interior design will need to change over time. You’ll be responsible for all those costs and the time associated with them, taking you away from doing business, and growing your empire.
Taxes are something we hear come up in conversation regularly, as folks get excited about offsetting interest payments against their tax bills. We’re with Dave Ramsey on this. Getting excited about offsetting interest against your tax bill is crazy. Interest is dead money. Being debt free means something mentally and emotionally, as well as financially.
Additionally, that 39 years it takes to depreciate the asset means you almost certainly won’t be around to enjoy it (!). But watch out for the tax bill on those capital gains. Either you’ll be paying it when you sell or your kids will when you leave it to them. Either way, Uncle Sam is smart enough to know giving you pennies in savings now is worth it to get you on the hook for giving them big dollars later.
Winner: WorkLodge (the benefits of scale produce cost savings that can’t be equalled or beaten)
Can you afford the time? Driving around with a real estate agent vs. growing your business. It won’t grow while you’re thinking about highway access and carpet colors, ease of parking and visibility. Finding the perfect office can easily become a three-month process, during which you will be spending time with agents, bankers, and decorators instead of staff, vendors, and customers.
As mentioned in the other sections in this post, you’ll also incur time costs for your team around many of the areas identified, which costs you indirectly (focusing on replenishing toilet paper means they’re not doing their job for example) as well as directly (you pay them and the government for every hour they work, not matter what they spend it on).
We save you all this lost time because our included, on-site concierge team take care of it all on your behalf.
The internet is the lifeblood of EVERY business today.
It’s not just about speed, it’s about quality.
It’s not just about cost, it’s about opportunity cost.
It’s not just about downtime, it’s about reputation when a customer can’t be serviced because your connection is down.
Business internet isn’t like home internet. That ‘Small Business’ offer for $300/month just won’t cut it if you depend on cloud storage, online connectivity to services or even plain old email. True, business class, dedicated connections cost. A lot. AT&T is currently quoting $2,750 per MONTH for their dedicated, 1gbps service. That’s after the install fees and setup fees. And if it goes down (admittedly, much less frequent) you still have no backup unless you buy a secondary line. Without it, you’re paying staff to deal with the issue, to sit around unproductively and to get frustrated.Even worse, what if a client is onsite with you for a presentation, or a document signing, or any other meeting that needs a connection. Do you want to risk the repetitional damage when you could avoid it?We build enterprise networks for a living. We do this all day every day providing the best connections, through the best hardware (our wifi access point cost thousands each, and we use 12 in just one location) to keep you working, with 99.99% uptime.
5. Surprises and Other Considerations
Can you afford even more surprises?
Repairs are only needed when something goes wrong, and it rarely goes wrong when convenient. When the air conditioning goes out in July, or a hail storm demolishes your roof, how will you handle it and how will it impact your business? If you’re building is flooded, where will you work from? If 2 things happen in the same month, can you afford the costs associated?
WorkLodge takes all this away AND gives you the guarantee that if one facility is unusable due to an unforeseeable disaster, your business can simply walk into any other WorkLodge and continue as normal. No hassle, no time lost and no additional expenses incurred.
Looking at an office condo?
They have hidden fees too. You’ll be paying for and dealing with essentially an HOA (and we all love HOAs don’t we?!). There may be annual checks, inspections or fees in addition or monthly management fees for trash collection and landscaping.
Prime Real Estate
We lease the best and newest locations possible, to make your business look AMAZING. When guests walk into a Class A building (or look you up on Google Maps for example) they associate your business with success. These types of locations just aren’t available for purchase and so if you do want to buy, you’ll be relegated to lower class developments like condos, or older, smaller free standing buildings.
Just like we all want to live in the nice neighborhoods, around nice neighbors that we can connect with and network with, our businesses need to be placed in the best locations also.
Flexible workspace like ours isn’t just a good alternative, it’s the only alternative that makes sense for businesses in the 2020s.
Your business needs to be located in a place that brings your clients the wow factor. It needs flexibility. It needs to save money on a total cost of ownership basis (which we absolutely do, hands down). It needs to be around other business owners that can help share knowledge, pass referrals and potentially even do business with you. It needs to have access to other amenities on site such as meeting rooms, recording studios etc. and it needs a professional greeter for your guests (so why pay for one when we include one!).
Are we biased? Actually, no. We just compared everything the same way you are because that’s how we started this journey and then realized there needed to be a better way. So we created it.
Still think you’re ready to risk it all with a purchase that could kill your business?
Let me leave you with one final thought…. Almost every landlord or building owner we’ve ever met doesn’t even own their own HQ offices, but rather leases them. Think about that for just a second. The folks who actually own substantial buildings and do this for a living don’t even think it makes sense to buy something for themselves. Doesn’t that tell a story all of it’s own!
2021 Workspace Comp Guide
Get an in-depth 2021 Workspace Comparison Guide so you can make the best decision for your business!