Accomplishing Goals Economically

April 13, 2006

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If your facility allows you to efficiently carry out the necessary functions of your business, presents the business in a good light, and allows for growth potential, you're well on your way to having made a good facility choice. However, there is one more important attribute of the "ideal" facility: it should fulfill your space needs economically.

If you are not able to purchase or rent your facility at the best price, your business will be at a lasting disadvantage. The misspent facility dollars will be a drag on your company's profitability, which can have several effects. In the all-important startup phase, these dollars won't be there for other needed expenses. Also, overspending on the facility will make your company's profit and loss statement less attractive, which can make it more difficult for the business to borrow money.

How do you determine if the price is right for a particular property? An independent real estate appraiser with a good knowledge of business property in the area could be a help. But don't forget that there are really two separate "price" issues here. The first is what is the property worth on the open market. The second — and most important for you — is what can you afford to pay for the property, considering your evaluation of your business's profit potential. The commercial real estate broker can help you with the first question; you'll have to wrestle with the second one.

Here are some ideas for saving facility dollars, particularly if you're in the startup or early childhood of your business:

Start out in a home office. Some types of businesses can be started out of and run from the home at least on a small scale. If your proposed business is one of them, you may want to try this. Operating a home office can help you to learn the business and build up a core of customers before you commit yourself to the overhead costs of a separate facility.
Share space with others. Certain startup businesses — particularly service providers, such as lawyers and accountants — are able to keep down their overhead expenses by sharing space, telephone, and secretarial services with like businesses. While these arrangements need not end as the startup phase ends, with time, one or more of the businesses may require a disproportionate share of the space and services, or may outgrow the office altogether.
Locate within a business incubator. Business incubators are groups (run either as private, for-profit organizations, or as not-for-profit groups) that are designed to help small businesses survive and succeed through the startup phase of their existence. Business incubators go several steps beyond the idea of shared space and office services; they also provide management and financial assistance. Although incubators have shown themselves to greatly improve a startup business's chances of success, not all types of businesses benefit equally from incubators. Because incubators are usually located in low-rent, often out-of-the-way facilities, they tend to work best when your business does not need to be at a particular location in order to draw in-store customers.