The Hidden Costs Of Successful Business Growth

27 August of 2014

If you are the owner or director of a relatively young business, you will know the trials you face, weighing up the requirement of investing in people, resources, expenditure of different kinds, in order to allow your business to grow and earn more income each month, whilst trying to ensure that you don’t over stretch your current budget and risk significant cash flow worries in the shorter term future.

Whilst personnel are one of the most changeable and unreliable resources, as even the most loyal employees will come and go as their lives change, they are also an area of the your business that you don’t want to get wrong. You don’t want to hire too many new staff and risk the security of the existing staff’s wages by overcommitting to salaries. Neither do you want to delay hiring new personnel for too long, leaving existing stuff with too heavy a workload, and exposing yourself to being unable to cope should an employee move on, go off sick, or take maternity leave for example.

Personnel requirements are a very specific juggling act. However, I still believe that this is not the only crucial factor to commit to when growing a business. Although it would be very unappealing to most directors, and many stay awake at night worrying about the security of their staff’s roles, it is still true that you have more flexibility with personnel than with a commitment to commercial property you’re renting.  For instance, you can make redundancies or let temping staff go. This sounds flippant, but this is reality for any business worried about going bust. I worked for a great employer in my twenties who started a great business on the outskirts of Cambridge just before the recession hit – and unfortunately for him and the staff, he had no choice but to let us go one by one as the situation worsened. He didn’t want to, but we all understood that he had no choice, and it was the office space which he couldn’t get out of paying for.  Commercial property to rent in Cambridge can set you back anywhere between £1000 – £10000 per annum, depending on your requirements, so it’s a large commitment to make.  When it comes to getting out of your business rent, it may not be so simple. And if like many small business owners you’ve put your own capital or savings in to your business, it may come down to your home or your employees. That said – I want to look at the cost of moving in the commercial sector, as all small business owners should know what they need to consider in order to make the most comprehensive plans for the growth of their business.

Cost of Leaving

I can’t express enough how important it is to check your lease agreement. First of all – you’re likely to have a very long term agreement, 5 to 10 years is very normal. In that time, there may be a ‘break clause’ whereby you’re allowed to leave after a specified time during the tenancy, often at 2 years. It’s extremely good practise to look at the health of your business before this break clause period has passed. It may be time for you to move to a larger office, or it may in fact be the case that you need to downsize for the next period – don’t miss your opportunity to move, as after this date you will be tied in long term, which could be the make or break to your business, either suffocating your potential, or draining all your profit if you’re overcommitted financially to an overly large property.

If you have decided to leave the property – check your lease for your responsibilities. Unlike in a residential property where you just have to clean up and make sure the property is as clean as when you left it, in commercial property you often have to ‘make new’ the interior of the building. For instance, it may be in your agreement that you’ll replace the carpets (even if they were only put in new 2 years ago), repair any damage to walls, and repaint to magnolia! This can add a sizeable expense to your moving budget, so just make sure to check your responsibilities and budget for them.

Of course, depending on your staff you may or may not wish to hire a removal company, which will cost the business. You should also make realistic assessments of how long the business will be out of action – should the move take place over a weekend so as to minimise the negative impact on your customer service? Or is it going to be more feasible to have a day with business closed and expect your employees to take the time to relocate, as you are already paying their salary anyway?

Cost of Settling In

Before you sign your new lease, make sure you know all of the costs involved in renting the new property. Not only may the rent have increased, but the business rates are likely to have gone up, cost of utilities, any payments to the landlord to maintain the grounds or facilities, and any specifics which can’t be changed in terms of service providers, for instance telephone and broadband currently in place in the vicinity may affect your available options.

It’s also important when assessing a new office space to think about how you’re current staff are going to react. Is it far from the location they’ve all been used to working in? Is it going to make any of them out of pocket by requiring additional travel time/expense? Is there enough parking for everyone who will now need to drive to work? For people who use public transport, is the new location well enough connected? The loss of great employees, or the additional payments you might want to give in recognition of inflated travel costs, could be the difference between a successful move and a tragic step too quickly!

This changeover can be a very difficult time for business owners and directors, and it is of utmost importance that every effort is made to have analysed the true likelihood of a move being successful or detrimental to the long term success of a business – some people will go on their gut instinct, whilst some will be paralysed by the numbers. The truth is that even with the best forecast and safety nets, no plan is ever fool proof. Therefore, try the best plan to ensure that you aren’t taking unnecessary risks, and then go with your gut, and advice from other business owners who have achieved success, and even those who have gone for the expansion and had to take a step back or even failed.

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