Friday, October 2, 2015

Relocating a HOME BASED Business to Commercial Real Estate

Image Attribution: www.torontothermographycentre.com
Many, many wonderful companies were started with two things - a great idea and a corner in someone's basement, garage, or living room. Disney, Microsoft, Apple, Hewlett Packard, and others, brain children of their founders, today employ thousands of people. None of these companies existed prior to the middle of the last century and ALL are truly a product of American ingenuity.

You may be reading this post in your home office while taking a break from working in your home based business. Your business now consumes your living room for its information technology department, dining room for sales and accounting, upstairs bedroom for procurement, and the garage for warehouse storage, shipping and receiving. Next door neighbors believe that FedEx is next of kin because their truck is in front of your house daily. You are wondering if moving from home is a wise decision.

The tipping point, for most small businesses that move out of their house, occurs around one of two circumstances - they hire employees or they receive customers. Both are clunky to accomplish from home. I have counseled countless small businesses faced with these situations.  I am consistent in advising them to remain at home as long as you can. Avoid the overhead. Get to the point of practically tripping over yourself, your family and pets before launching into an office suite or industrial building. If you have no employees and don't receive customers, this move can be postponed indefinitely. If you MUST move, this post provides advice on issues to consider as you move your business out of the house and into a commercial real estate location.

Cost considerations. Your business occupies your bedroom. If you own your house with no mortgage, you have little overhead for the business. Once you leave home, you will pay a commercial landlord rent for the location. In addition to rent, your commercial real estate location will require utilities (electrical, phone, internet, gas, water, trash, janitorial, etc.). You pay these costs at home already. Now, you will duplicate your utility costs. Your commercial landlord will require liability and contents insurance and to be named as the additional insured.  This insurance requirement exceeds what your business needs at home. Most commercial landlords will require a lease term of one year or more - thus your business is committed for this amount of rent. Depending upon the age and financial capabilities of your business, you may be asked to personally guarantee the lease obligation.

Permitting. The municipality where the business locates, will require occupancy permits. Chances are you have a business license as a home based business but now you will need a permit to operate your business from a commercial location. If the operation involves a manufacturing process, plan on this taking some time to accomplish.

Location considerations. Folks believe that the three rules in real estate are location, location, location. I would add a fourth - where does the boss live - that is you! If you move your business to an off site location, working until 2 AM is not as easy as staying up past your bedtime at home. You cannot roll out of bed, in your pajamas, and go to work in the spare bedroom anymore. You must rise, dress, drive, and potentially greet employees. Find a location as close to home as possible. You will save on the commute time.

To lease or purchase. I generally would advise that you lease and do so for as short a period as possible. You don't want to commit yourself to a location that you outgrow in three months or discover that moving was a huge mistake and you should retrench to the garage. Buying a location makes a great deal of sense at some point in a businesses tenure, but not first thing. Lease a spot, get the business stable, make some money, hire some employees, make some more money, and look to buy down the road. I discussed this in detail in this post.