Loans

Avoid the “vanity” lease and preserve your profits

Avoid the “vanity” lease and preserve your profits

Every Friday we just want to stop the world for a moment and give you a couple of real tips to think about that will make a real difference to your business and in your life.

There is a fine and potentially very expensive line between securing the right workspace for your business and ego-driven extravagance.  At the polar extremes it’s pretty obvious what represents a sound investment and what’s just plain silly.  However the grey areas are where even well-meaning and sensible business owners can fall under the subtle spell of extravagance.  Here are a few tips to help you spot the difference and avoid getting the stink-eye from your business, your associates and your accounting team.

 

From the garage to the… penthouse?  Don’t do it!

A lot of businesses start out in a friend’ basement, a garage with a desk or even from a bedroom with a laptop and a borrowed printer.  Eventually, and hopefully sooner rather than later, the commercial entity will have grown to the point where a work environment that reflects the progress made and where the business may be heading is required.  Sooooo… half a floor on the 30th floor of a CBD office tower.  Sweeeeet!

Okay, not many people would go that far.  That’s the extreme that I mentioned.  But plenty of people go ahead and lock themselves into a pricey lease based on the euphoria of recent success, overconfidence and a near lethal dose of not knowing their numbers.  One or two big contracts in the bag and we are heading to the top… (tire screech)… (crash).  How do you avoid that collision with reality?

Tip:  work out your business’s income, expenses (including tax, paying down debt but excluding rent), the amount you get paid for both working in and on the business and a contribution to your profit war chest.  Essentially your “magic number” minus the rent.  Okay, now what do you have left at the end of your typical month according to your calculations?  That number is what you can afford to pay for commercial space.

Once you have that figure, you might find that your brand will be represented just as well working from a co-workspace, a smaller office, something closer to the 10th floor maybe…

In short, when thinking about locking yourself into a long term lease that looks fantastic (especially from the private balcony that leads to the roof or that cool loft, open plan in the heart of the creative district) – think long, think hard, think again.

Tip:  If you’ve done the numbers and all ledgers point to that big office with the extra storage space and cool reception area, shop around for a lease that doesn’t lock you in beyond the foreseeable future if possible.  Nowadays there are a number of purpose and brand fit spaces for different types of businesses that have flexibility – you just have to ask.

Remember, you may think that visual impressions are the be all and end all (or at least very important) but what really counts is your bottom line.

And that’s the bottom line!  Have a great weekend.