Is your business ready to open a new location/office?

By Adam Caplan, Director

If you’re feeling like you’ve outgrown your current location, it could be time to look for a new business premises.

It’s not uncommon for businesses to grow to a size where old office locations can feel stifling and disruptive to employee work styles.

Where there are plans to broaden your workforce, take on new clients or maybe even relocate for a new demographic, these are clear signs for office expansion.

However, enthusiasm for growth can sometimes outrun the numbers, so due diligence is needed to make sure your business is ready to take the next step.

When you might be ready

While moving location or opening new offices can be a colossal task, there are indicators that suggest it’s worth the hassle.

Hiring more in-person staff offers practical challenges if the office is already feeling like a tin of sardines.

Limiting new hires to remote working can decrease the quality and volume of staff willing to work for you, so maybe you should start planning that move.

Outdated and cramped offices might also seem unprofessional to both clients and potential employees.

It’s one thing limiting staff to home working, and it’s another to make them work in an old-fashioned and stuffy office.

Likewise, businesses that frequently meet clients will often need conference areas and board rooms to host events.

This might not mean searching for a brand-new office complex but maybe leasing meeting spaces nearby.

Finally, if you are confident a move is right and you have sufficient funding, opening a new location could help your business flourish.

Hidden costs & financial planning

Before opening a new location, your business should understand the full financial commitment and hidden costs.

Your budget should factor in:

1. Purchase/rental price: This can be based on market valuations and a comparison of similar properties in the area.
2. Stamp duty land tax: If a property exceeds a certain value, stamp duty can result in significant added costs.
3. Legal and surveyor fees: When conducting proper due diligence, legal and surveyor fees can bite into budgets.
4. Refurbishment costs: Taking on a new office also means updating the space to meet operational needs.
5. Regular expenses: These are things such as business rates, insurance, maintenance, utilities and service charges.

After accounting for these initial cash outflows, your business should consider what income or client base would be needed to make it profitable.

Put simply, how much would it need to turnover to cover its annual costs and what does this mean practically (volume of contracts, billable hours etc.)?

Also, what is the opportunity cost of opening a new location? Could this money have been better spent on marketing, more industrial plant or paying debts?

Or maybe the limited space for new staff could be overcome by hiring remote workers.

These are all questions worth asking when considering a new location.

 Why cashflow is so important

A business might be able to cover the costs of opening a new location, but can it afford a few months of overheads before it breaks even?

While absorbing setup costs might be the immediate hurdle, keeping a cash flow buffer for the first 3-6 months of expenses is just as important.

Healthy cash reserves allow your business to cut the red ribbon at a new location without needing instant revenue to stay afloat.

If a business plans to pay for overheads by generating income on day one, they might find themselves caught in a cash flow crisis.

You shouldn’t overestimate how fast a new location will begin to generate returns on investment, so cash flow forecasting should always give your business a runway.

Any modelling that does require even modest income should be stress tested, in case it turns out to be 20 per cent or 30 per cent lower.

Getting a second opinion

Speaking to one of our specialists can help your business budget for an expansion and forecast cash flow.

We can help you remain payroll compliant with new hires and claim tax relief on purchases of new office furniture and equipment.

To make sure you have the stress-tested cash flow runway you need, we will help project costs and estimate when you’re likely to see a return on investment.

A new location means new numbers, so let us help you understand them.

Get in contact today.