Q: When should an entrepreneur move the business from a home office to rented space?
A: Moving from a home office, where occupancy costs are effectively zero, to rented space is a big decision. Obviously, monthly expenses will increase. You’ll have to pay rent. If it’s not included in the rent, you’ll have to cover utility costs. In some circumstances, there may be other monthly fees for services such as cleaning and grounds maintenance. There will also be one-time costs. You may need to hire movers or purchase furniture, office equipment, or phone systems. However, depending on what type of business you have, there are reasons to set up shop in a location other than in your home.
Not a home-based business – Regardless of expense, there are certain businesses that cannot be run out of your home for legal, regulatory or infrastructure reasons. For example, you’re not going to be able to operate a business that produces large quantities of toxic chemicals in most neighborhoods. Similarly, if the equipment you use in your business requires large amounts of three-phase power, the power delivered to your home is likely to be insufficient. Clearly, some enterprises are simply not candidates to be home-based.
Revenue benefits from moving out of your home – Consider a business where prospective clients routinely visit you before making a decision to purchase your product or service. There is a perception that rented space is more professional than a home office. This perception may result in increased sales. In fact, the increase in monthly revenue may be greater than the extra cost associated with renting office space. In such a situation, you should move the business out of your home as soon as you can cover the one-time costs.
Hiring employees – In other businesses, prospective clients or customers will have no idea whether you are working out of a home office or rented space. Revenue will be unaffected by moving from a home office to rented space. However, when you decide to hire your first non-family member employee, a move to rented space may be justified. You may not be comfortable having your new employee come to your home every day, particularly if you have to spend considerable time out of the office. Alternatively, you may find that it’s difficult to hire the type employee you want while working out of your home. In the employment market, there is a bias against home based businesses.
Space limitations – In other businesses, you have the employees you need and revenue is unaffected by your status as a home base businesses. In these circumstances, physical space will be the limiting factor. As your enterprise expands, the time may come when you can no longer operate effectively out of your home because there simply isn’t enough space. Still, in these cases, we advise staying in your home office as long as it’s feasible. Moving will mean higher costs with limited corresponding benefit.
Moving your home-based business into rented space will increase expense. However, there are good reasons to make this decision. Make sure you know when the time is right to make this move.