The 8 Biggest Mistakes Entrepreneurs Make When Leasing Office Space
Whether you are a seasoned entrepreneur or beginning your business journey, you are probably used to the fast paced exciting nature of running a startup. However, securing an office space, and especially the RIGHT office space is not a fast process, nor is it foolproof! Negotiation needs to happen on boths sides of the deal. There has to be a willingness to experience some give and take if getting a great deal is your overall objective.
Here are the top 8 pitfalls that commonly affect entrepreneurs searching for an office space.
Failure to Structure the Right Lease Term
Securing the structure of your lease term requires a good amount of forethought. You should consider the following factors in relation to the lease term you should commit to:
- What stage is your business in? Are you just starting out or have you already experienced the majority of your growth?
- What are your realistic space needs for the near future? (at least the next few years)
- Do you plan on keeping your company for the long-term or is this a short ownership cycle before the next project?
The answers to these questions will help you to determine how long your lease should be. For instance, if you are in the beginning stages of your business or plan on selling, it is less desirable to have a long-term lease liability on your balance sheets.
Unrealistic Construction Build-out Expectations for Lease Term
Once you have determined a lease term that will work best for your business, realistic expectations must be set relative to that lease length. If you are not willing or able to sign a long term lease, this will impact the office space finishes. With short term leases, most landlords will not invest a lot in construction and finishes for the space. In this instance you need to be ready to either compromise on your vision for your office space, or be ready to put down your own money for a portion of the design and construction costs.
Understanding That Time = Money
The ultimate give and take in the relationship between entrepreneurs and landlords is with time and money. Landlords want longer lease terms so they can recoup their investments in the property quicker. Every time they have to turn-over a space, which includes cleaning, prep and redesign, it costs them money and proves to be more costly than long-term lease relationships. If you cannot or will not commit to a lease term of at least 5 years, you should anticipate an increase in your rental rates of at least 5% premium over the asking rates the landlord may have originally offered.
Not Planning Ahead to Avoid Too Much Compromise
We know that in your day-to-day business interactions you are accustomed to fast paced and quick results, but when you are looking at leasing an office space, this behavior becomes a liability. If you are waiting until the last minute to secure a space, there are going to be significant trade-offs. There will also be limited options to consider based upon what is available in the marketplace, in a narrow time frame. Having a short lead time means you will have to adjust your space build out expectations, and if you were planning on custom furniture or fixtures, chances are you won’t get them in time. If you do not want to compromise on design or settle for ‘in stock’ furniture and fixtures, you should plan for a timeline of at least 6 months.
Being too Trendy With Space Design
We frequently discuss the sweet spot of “where form and function meet.” If you have form without function, it may look nice, but it will not result in a sustainable office space. And you will probably pay the price twice: first for the initial construction and the second time for the “space fixes” needed to get work done.
On the other hand, if you plan your space with both design and functionality in mind, it will better serve your day to day business needs. We recommend setting realistic expectations for your office space, bringing your grand vision to the table with a dose of practicality.
Incorrectly Estimating Growth
How much is your company going to grow, seriously? Make sure you put some serious thought about how much your business is going to expand in the next couple years. You may think the space you’ve designed has ‘wiggle room’ for the next wave of hires, but have you really thought about all of the ancillary issues that arise with rapid growth? Issues like noise control – are people too tightly packed with no considerations built in for sound deadening? Or does the building and/or neighborhood have parking or transportation options to manage your larger team? Consider questions like this to determine not only the size of the space you are thinking about, but also how long your lease term should be.
Not Having Built In Your Trapdoors
These are the negotiation terms that are ONLY there for the benefit of the tenant. Neither the landlord or their agent will be suggesting these items to you. Trapdoors can give you an out during the term of your lease. For example, an early termination option if you want to tie up the great rental rates now, but have the ability to terminate it early should a lucrative company sell-off present itself. Or have you put in an expansion option to take the adjoining vacant suite for future growth needs? What about a terrific smaller building that you think could be your forever home for your business? Do you have a first option to purchase written into the agreement at specified pricing? All of these “trapdoors” allow you to get the most out of your terms.
Unrealistic Cost Expectations
You may have a killer idea or have grown by 300% in three years, but longevity and deep pockets are what seal the deal with landlords. You need to be realistic about what they are going to ask of you. Either provide lots of historic financials to prove your long-term bankability or sign a personal guarantee to ensure the landlord won’t be left in the lurch if this particular venture closes down in the future. Don’t take it personally, the Landlord is just ensuring you’ll meet your financial obligations.
Knowing how to address each of these pitfalls is going to drastically improve your chances of securing an office space that you not only love, but are able to maintain for however long you decide you need it. If you have additional questions about your office space leasing needs, feel free to contact us.