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Before you Start Pounding the Pavement (or Keyboard)….Consider your Budget!

To follow up on last weeks’ post- -we have expanded more on determining a budget for the new space.

Sometimes the first step business owners want to take if they are first time leasers of commercial office space is to begin searching.  The problem with beginning your search before you determine your budget is that you will get to see amazing spaces with great amenities that are way out of your budget, and you will never be satisfied with office spaces within your budget. If someone suggests you see a space that is “a little outside your budget, but you’ll really like it”- JUST SAY NO!

There is no hard and fast rule for how much your rental payments should be as a percentage of revenue, but there are some good tools to help determine what you can afford. Below is a list of items to consider when putting together a budget:

  1. Utilities- If gas and electric are NOT included in your lease rate; make sure you have an estimated cost for any space you are considering. Ask for previous billing statements, most landlords will have cost estimates on a per square foot bases. For example, we tell our customers to budget around $1.50 per square foot per year for gas and electric. In older buildings you can expect your utility bills to be higher than in newer spaces, mostly because they lack the energy efficient fixtures and HVAC systems that come with new spaces.
  2. Internet/ Phone- Sometimes business owners get fixated on the monthly rental payments to the landlord and forget about some of the incidentals. Know what your monthly payments are for phone and internet and if you plan on adding some new lines at your new office make sure you get quotes from that provider; add this figure to your monthly payment.
  3. 3.       Insurance- This expense is often over looked; most landlords will have a minimum requirement for their tenant, which is often outlined in the lease. Ask any potential landlords what insurance policy they require, and make sure you include it in your budget.
  4. Common Area Maintenance (CAM)- We will talk more about CAM charges in future articles about different lease rates. For preliminary searches make sure you know if they are included in the lease rate, and if NOT what the charges are and what services your payments cover (i.e. some landlords will charge for new roofs, sidewalks etc. or some stick with the regular landscaping, snow removal…).
  5. Janitorial- If you’re not a DIY-kind-of-office, add this expense in to!

This topic was not meant to scare people away from looking for new space or moving out of a home office (although it may seem that way), think of it as “preventative medicine for reducing risk”. Getting the right space and location for your business is an investment in your business- but you just don’t want to bite off more than you can chew.

Know What You’re Looking For – So You Know When You’ve Found It

If you have begun your search for commercial office space or are planning on taking the leap soon- here are some of the important things to determine before you begin your search.

  1. Budget- Know how much you have to spend. This should be based on a clear financial view of your business and forecasted with conservative revenue estimates and expense lines, if you need clarity consider using your accountant or a trusted financial resource.
  2. Type (Class)- There are different Classes of office space available, and that will impact the price heavily. Have a good idea of what you are looking for, i.e. class A, B, C (Definitions), for example, is it important in your industry to have high end finishes or is the bottom line more important?
  3. Location- Do you have a general idea of where you want to be located? Downtown locations, suburban or rural locations? This will impact lease rates heavily, the premium locations will cost a lot more- but if you rely heavily on foot traffic and visibility- it might be a price you’re willing to pay. If location is not as important, look for properties slightly off the beaten path, but convenient for your business and employees, for example, close to thruways or airports.
  4. Size- Knowing what your current space needs is; number of offices, open space for cubicles, waiting area, conference room, etc. are helpful ways to describe your needs to potential landlords. Describing your needs in square footage can get you both in the right range, but allow for some wiggle room- some floor plans are more efficient uses of space than others and vice versa. It’s also important to share your business plan with your landlord- do you see yourself hiring people in the future? Or perhaps letting some employees go? This will help you get set up for the long haul and avoid moving to frequently; maybe your landlord will give you a right of first refusal on adjacent space, or will offer expansion or contraction options?

Communicating your immediate office space needs and future needs effectively with potential landlord will save lots of time when it comes to the searching process. However- nothing is ever perfect- and much like searching for the perfect home- sacrifices will have to be made. Knowing which of these items; budget, class, location and size you are willing to bend is just as important as knowing what the initial need is.

David Merrell is the COO at North Forest Office Space

North Forest is a leading expert in leasing office space to small businesses.  They leases office space from as small as 130 square feet of executive space up to an entire 15,000-square-foot building, allowing for an office that can grow with the customer’s business.