November 2001 - Small Business News

1. WHERE TO SET UP YOUR BUSINESS

a) INTRODUCTION

This article is aimed at the small and home business. In keeping with our usual article concept, the following is a guide (not an exhaustive report) to some of the issues that you need to consider prior to starting your business, or when upgrading your current location. Almost all businesses need specific requirements that will enable them to trade successfully from their premises, and the following covers most of those specifics.

Whatever business we start the need for 'operating' space is a key issue. Space to work in ranges from a purpose built, fully functioning and well located premises, to the front seat of our car: I confidently add that it's nearer the front seat, than purpose built, for most of us.

The rise of the Internet, and it's lack of infrastructure requirement, has encouraged a new generation to become business owners. I know of one e-business that operates from the corner of a front room and use a garage as a warehouse. They have, almost, daily deliveries bringing stock, and have over generous neighbours in my view. The issue with home based businesses that move stock is an environmental one and can lead to a court injunction from your neighbours or local council. A further example of environmental contention is street car sales from the drive of the family home.

The other extreme is the new enterprise that moves into a business centre with laid on, and costly, administration services or/and a minimum term rent/lease agreement that favours the landlord and not you. Or, the business owner that moves into a larger building than they can use immediately, but has planned for growth to come quickly in their business plan: a dangerous strategy if cash flow is anything less than fluid.

One further point before moving to the article. What determines where you operate from... accessibility, location, production, future capacity, cost? I believe it's the 'production'. Whatever problems you have with where you operate from, you must be able to perform your work to the required standard. This may seem obvious, but is overlooked by many. This also goes for those working from home... it's a false economy and a major distraction if at the end of the day you cannot produce the required numbers and standard of goods or services: whatever the benefits!


b) TYPE OF PREMISES

The type of business you are in will greatly determine where you can operate your business from. If you have many retail visitors (and not so many in some residential areas), you can only use a property that is determined by the local council as being a retail outlet, alternatively, you would have to apply for retail capability. Manufacturing, engineering and general industrial businesses are all areas where legislation, environmental issues, health and safety etc have to be considered before the more general issues. Basically, you will always have some choice of location, but not necessarily one that you want!

Where to Look
Finding reasonable premises is quite easy if you have a good budget and an ability to haggle. At the other end, someone has to end up in the less attractive offices and factories that have little maintenance, but are low cost: this is at least the foothold that many businesses need. Looking in the local free and paid newspapers is the easiest option to see current offerings, with Business Links and regional enterprises able to offer guidance and contacts. Your local commercial estate agent will have locations and your council may have some information. Driving through your preferred location will also give you a number of opportunities that should be easily recognized by 'To Let/Rent' boards.

Home Based
In most situations the home is poorly designed for business use: your operating space can be small (box room), a living hell (the front room), or remote (the garden shed). The home address can be un-business like (e.g. '2 The Meadow'), and too well known as residential (if you trade locally). Tying up the one phone line causes problems for you and the other family members. Answering the phone "hello, George's means wear" can be uncomfortable with family and friends, and may cause endless embarrassment for the kids when their friends call: for credibility all who answer the phone must be in business mode...

...but on a positive note; sharing space at home will save you hundreds of pounds a month (the difference between success and failure for many). Working from home arguably allows you to work hard in the early stages of a business by always being at work (starting any business requires extra resolve). A second phone line is a great low cost addition, and at an even lower cost than renting a second line you can get a different number and ringing tone for a few pounds a month. A PO Box number is a low cost and simple answer to a trading address, but can be off putting to some customers/clients: adding 'The Business Centre' before '2 The Meadow' is a more acceptable all round choice.

Basic Rent
Renting office, manufacturing or stock space is the main avenue for most new businesses. The rent is comparable with leasing, and even buying, but the commitments are limited to a, say, 1 to 3 months rent agreement. Renting also means a one price service: you make one monthly payment and forget the rest (excluding phone bills etc).

Lease
Leasing, a more formal agreement than renting, can have binding contracts from, say, 1 to 3 years. The monthly payment may be contracted to increase by, say, 15% per year, with a full review at the end of the third year: bear in mind that you may be able to haggle for a lower fee than the original rent if the landlord (lessor) has problems with leasing other units that they may own. Leaving a lease before expiry will not get you free of the contract, and many that do leave early have to work hard to find a new occupier (the lessor will not be too worried while you are responsible). With a lease you will be accountable for all repairs and even some wear and tear. Using a solicitor who deals regularly with leases is a must. Haggling over all costs related to leasing is common enough for the landlord not to be offended if you try to drive the costs down.

Buy or Build
Buying premises is not common within the small business start up world, but buying is on the increase as our business location becomes less important (trading outside of a main city did have its knockers) and is also more affordable in low cost areas. The average cost of a lease will easily match the average cost of a business mortgage and builds equity into the bargain. Having the responsibility of full maintenance, inside and out, can cause you more stress than the business you run, and there is no quick way out.


c) KEY ISSUES

A number of considerations will lead you to the best location for your business...

Production
As discussed earlier, you must be able to produce your goods/service to a standard where repeat sales are wanted. Therefore, your working environment will directly influence your survivability through quality of output.

Environment
You must also ensure that all environmental issues are covered: waste, noise, health & safety, deliveries, hazards etc.

Cost
Setting your business up in a way that is attractive to potential customers is probably the first thought many of us have. After all, if we have quality premises we must be OK. There is nothing wrong with this thinking, but it's of little concern if no one visits your office/factory. Likewise, if no one calls your office/factory (as happens in many more businesses than you may think) renting a serviced office, or renting a factory with offices is pointless. If your factory space is under utilized then it is a likely to look like you have too few orders, rather than having lots of space for growth...

...at the other end, having too little room can seem chaotic but that is unlikely to reflect badly on management: visiting trade customers will be unconcerned with your work environment if you are busy supplying the quality they need. However, if you are in the service industry and organization is your business it must be reflected in your premises management.

Use
Not all premises are suitable for every type of business with laws and penalties in force that will severely punish those who risk workers, the public or themselves: If you are in doubt contact your local council. In some circumstances you will be able to sublet, but only if you have the express permission of the, say, landlord. If you sublet from a tenant, you should ensure that you have the right to be there: failure to do so could invalidate any insurance you have, as well as leave you at the mercy of the landlord. Be sure who bears the cost of maintenance and what the proper procedure is where maintenance is required. Finally, find out what you are allowed to do internally to the premises: building work, decoration, utilities, down to putting up shelves needs to be crystal clear and in writing. The best way to look at this issue is to think 'if this was my house, I'd expect tenants to...'

Location and Accessibility
You and your staff must be able to commute to the place of work in a reasonable time, in safety and by reasonable means. Office and factory space is now coming from every type of property as the developers turn ruins and rundown locations into 'prime' rentable space. What seems like a worthwhile extra commute when you decide to work in the middle of nowhere can become an office too far for you and your staff alike. Quality staff recruitment will be difficult if you locate to an area that has little to do with your industry: the average travelling time of staff increases with individual and business specific needs. Deliveries, for instance, can be overlooked when deciding location and you need to consider where you get your supplies from and the costs involved if they are not local.

Security
Low rent can drive the new business into a never ending cycle of break-ins and vandalism. What looks bright and busy during the day becomes dark and forbidding at night. That said, quality security equipment and fittings, properly installed, can make the difference: to the vandal that is!

Technology
It goes without saying (but I will) a telephone is a must in any business. This has not always been the case, but with the Internet there is almost always some benefit to be gained from being online: whatever industry you are in. Take a good look at the technology capabilities when assessing a premises as many business sites have little in the way of commercial standard Net access. Choosing premises that are serviced by at least two phone/technology providers will ensure that you have choice of product, and price, through local competition (ditto this last comment for any business service).


d) THINGS TO DO

In most circumstances, one occupier moves out as another moves in, as with personal housing, and basic areas need to be dealt with.

If you lease or buy dedicated business premises you need to inform your local council of your move so that business rates become your responsibility. The telephone supplier needs to be altered prior to your move to ensure as little disruption as possible. The same applies for gas and electric: ensuring that meter readings are agreed and signed for by the outgoing business. All of these areas need some time spent on them before moving in so that you know the time scale of disruption and to ensure you have alternative means to cope in the short term. If you are moving into a space that has not been used for some time you need to, at least, double the time spent in contacting the service providers. It is not uncommon for bills to be outstanding for which the say, landlord, is held responsible: as such, you will not get the supplies until the debt is paid even if it is nothing to do with you.

And finally, there is a well quoted story when choosing location: it goes like this...

...most people thinking of opening, say, a retail outlet in their local high street walk up and down looking for the service that no one has thought of opening as yet. They would then open the business and hope and pray business arrives, and their marketing budget is a drain as you have to let people know that you have opened a new, say, electrical shop. The smart ones amongst us spot that there are TWO newsagents that can survive in a small town high street: so they open another newsagent because it obviously works, and then they go about offering a better service than the other two newsagents with the aim of putting them both out of business.