Most startup businesses begin life operating from their home residential address, but the natural progression for many is to take on their first office premises at some point. This is usually because they need to hire their first employee, or simply because they feel they can now invest a little more in presenting a more professional image for their growing business.
BusinessComparison have compiled a comprehensive guide of the things you need to consider and the possible hidden costs of committing to your first office!
Of course you already know that you will need to pay rent! But there are other things to consider too!
If your Landlord is a VAT registered entity, the rent will be subject to VAT at 20%. Often, this is not displayed in the pricing you see on the website or advertisement so you should check with the Landlord or Agent whether the pricing is subject to VAT. If you are not VAT registered, you will not be able to reclaim this cost.
There will often be a lump sum to be paid to the Landlord as a deposit. This may be payable at the start of the tenancy, or split across each year of your lease. The purpose of this deposit is to cover for ‘exit costs,’ (also known as dilapidations) so any cost to the Landlord of putting the property back to its original condition after you have vacated. This might be cosmetic repairs, removal of any desks or property left behind or cleaning.
It can also be used to absorb any loss of rent incurred by the Landlord should you go out of business during your tenancy.
Payment due dates
Will you be paying your Landlord monthly, bi-monthly or quarterly? Although it all amounts to the same outgoing, it can impact your cash flow if you pay quarterly. You will want to factor in any predicted uplifts or slow downs in your sales revenue against when your rental payments will be due.
Usually, offices will be let vacant and without any furniture. The costs associated with buying office furniture can be substantial and there are likely to be things you completely forgot you would need.
Desks and Chairs
If purchased from new, a standard desk can set you back anything upwards of £85.00 and a chair from £50.00 (although more plush variations cost a great deal more!) If you require several of each this can easily cost hundreds of pounds.
Sometimes, you can pick up second hand desks and chairs for a fraction of the price – although they won’t always be matching!
Fridge? Kettle? Microwave? Coffee mugs? If you’re lucky they might already be provided in a communal kitchen, but if not then you need to factor in these costs.
You may have already considered an outdoor sign for your new premises, but you may need to invest in others too. Such as signage to indicate fire exits and toilets. You may also wish to liven up the wall space with other graphics.
Meeting Room / Reception space
If you have a meeting room or reception area, you will probably need additional tables and chairs, white boards and a projector or a reception desk.
There are likely to be legal costs associated with your first office. While some Landlord’s have pre-prepared leases, you will probably want an expert to check the terms that you are agreeing to are reasonable and fair. Here are some common terms that they will want to check for you.
How long is the lease for? One year? Three years? Five years? If you have a long lease, your solicitor may advise you to negotiate a shorter term – as you could be responsible for the rent for the entire term if your business was to close mid-way through. As a limited company, you would be personally protected from being pursued for the outstanding rent, but as a Partner or Sole Trader organisation the Landlord could issue legal proceedings against you personally for this debt.
A break clause is a caveat in your lease contract where you can terminate your lease at an agreed juncture, typically half way through, without being responsible for the costs thereafter. This gives some flexibility to you as a business owner should you outgrow the premises you are taking on, and limits your liability were things to be less successful than anticipated.
You should however note, that you are likely to lose your deposit in the event of triggering the break clause.
Business Rates are payable on commercial spaces (think of it like a Council Tax for business owners) and the cost of this is assessed against the ‘Rateable Value’ of the premises.
Change of use
If you are thinking of taking on a property to change its use, perhaps from an industrial unit to an office, or a retail space to an office – the property will need to be re-rated and this can mean the ‘rateable value’ changes – so be careful not to rely on the previous rates when calculating your affordability!
Small Business Rate Relief
There is some good news! You will not pay any business rates on a property that has a rateable value of less than £12,000! This is a fairly recently initiative to assist small businesses in the UK.
However, you should be aware that this can only be used on one property for each business. For example if you had two offices within one building, with two separate leases, each with a rateable value of £5,000 you would not receive the relief for the second office even though they amount to less than £12,000 cumulatively. But if you had one office that had a £10,000 rateable value you would benefit from the full relief.
Which insurance policies do you need to take out when renting your first office space?
Public Liability Insurance
This cover is a must! This is to protect you should someone have an accident, or their personal belongings are damaged at your premises. If you don’t have adequate Public Liability Insurance you would be exposed to the risk of a compensation claim against your company, or even against you personally.
It is likely that your Landlord will cover the Buildings Insurance, but you will probably need to arrange your own policy for your contents – such as laptops and equipment, should they be stolen or damaged.
Specialist Equipment Insurance
If you are considering leasing or buying expensive equipment such as a coffee machine, your contents insurance may not cover the full replacement value. If you are leasing equipment it is a common obligation to hold appropriate cover as part of the lease agreement.
Heating, lighting and water can get expensive – especially when winter sets in! Even a small office can get through a lot of energy keeping warm for eight hours a day so it is important to compare energy prices for business and always try to be on the best tariff possible.
If you are dependent on heating your office space using electric, your consumption is likely to be much higher than someone with gas heating. Be sure to ask your Landlord at the beginning who your current supplier is and find out the standing charges and cost per kWh as soon as possible!
You can obtain the very best price available using BusinessComparison to compare business electricity prices.
Not all business premises use gas, and some use LPG tanks or gas bottles – these are questions to pose to your new Landlord before signing the lease.
If you do have access to gas, it is always best to compare gas rates for business use before deciding whether to go ahead with the deal or not.
People often forget about the cost of water – and although it’s a relatively small cost compared to electric and gas, it can still equate to several hundred pounds per year.