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Cost Certainty – The SME Business Owner’s Guide to Property Expansion

Cost Certainty – The SME Business Owner’s Guide to Property Expansion

Phil Sugden, director at flexible workspace solutions provider, Portal Group, discusses how rapidly growing SMEs can alleviate the extensive capex obligations incurred when relocating offices.

For both small and large businesses alike, an office move can be an incredibly daunting and time-consuming process.

The start of a brand new year offers businesses a crucial opportunity to attract new talent. January is not only a peak time for prospective employees to begin looking for their next career move, but also a key time for growing SMEs to consider relocating their workspaces to larger premises due to growth[i].

However, the uncertainty of the current market conditions, and of course Brexit, means that UK-based SMEs are now required to adapt their operations to become more flexible than ever before.

The fixed terms and extensive lease lengths associated with the conventional leasing model can present significant challenges for smaller businesses experiencing rapid growth.

While growth is one of the most esteemed characteristics of any successful organisation, research has found that 78% of SMEs actually delay moving offices due to the stress associated with property acquisition[ii].

Despite this, property expansion is a fundamental phase for SMEs. Relocating to larger premises allows businesses to meet fluctuating demands, while also facilitating the introduction of a larger workforce.

Property acquisition is commonly considered to be one of the most costly financial investments a small business can encounter. Under a traditional lease, business owners must consider an array of different expenses, including fit out and facilities management at the start of a new lease, and dilapidations and exit fees at the end of their current lease.

Unpredictable fees can have a seriously negative impact on businesses, forcing even the most well-established businesses to reassess their budgets. With various different costs incurred throughout the process, forecasted budgets can easily be exceeded due to delays, oversights and issues emerging unexpectedly.

This, in addition to the time-consuming process of acquiring the multiple formal approvals required for revising budgets, can have a detrimental effect on output and productivity.

In comparison to other areas of the business, property acquisition under the traditional office lease presents a substantial capex obligation, and the cost is not always guaranteed if the project is managed incorrectly.

As a result, SMEs today are far less attracted to the financial burden of a lengthy traditional lease, and instead far more attracted to contemporary workspace contracts that can facilitate their future growth strategies.

Small to medium sized businesses are now viewing their office space requirements as a strategic component of their business plan, and thus opting for more flexible leasing options at a fixed price, with no additional costs.

In the UK today, the vast majority of traditional office leases require a commitment for a 10-15 year fixed term. For SMEs growing in a rapidly evolving market place, this can limit future business developments and changes to working culture.

The contract lengths for managed office options, however, typically range from 3-5 years. This enables companies that require a high number of workstations, to closely align their accommodation requirements with their actual business needs, allowing them to expand or downsize as required.

The first step of the property expansion process is sourcing a suitable building and location. Under the traditional office lease, businesses are required to self-source their chosen property. Packaged offerings will undertake a bespoke property search which closely aligns with business requirements, in addition to handling the entire project management, which will be combined into a single cost.

Once a suitable property has been selected, the terms of the contract can then be negotiated. This is a crucial time for SMEs to reflect on their growth strategy and meticulously forecast for how their property requirements could change over the given time period.

Once negotiations have completed, SMEs relocating under the traditional lease should begin the process of relocating their IT and telephony infrastructure. This is a critical part of the relocation process, and one of the biggest causes of reductions in productivity if not managed correctly. Managed office models integrate the IT move into the project, minimising business interruption and downtime.

One of the final stages of the expansion process is fitting out the new workspace. SMEs should carefully consider the time, resource and costs associated with designing and branding their new office. If opting for a conventional lease, this will need to be outsourced, in addition to sourcing the furniture and managing the utilities, which can present a substantial additional expenditure

Businesses are also highly restricted on how they can utilise their office space to reflect their brand and organisational culture. With flexible managed office models, office design is determined by the occupier and not the provider, and can be bespoke to the business’s requirements.

Under the traditional office lease, the possibility that SMEs may need to expand, reduce, reallocate or relocate their workforce can be extremely costly and entirely impractical. Conversely, opting for a managed office approach will allow contracts to be priced on a per workstation basis with no capital expenditure or risk.

With simple, streamlined systems and structured terms from managed office options, business owners can invest their time, effort and money into their businesses, not bricks and mortar.

Simply put, the rise of companies opting for flexible office options is allowing them to not only access all the amenities they need at a fixed price, but also to eliminate risk and work within a flexible financial model that fosters their own unique growth and culture.

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