If you expect your business to grow quickly, it can be difficult to get suitable premises for your needs. Though you may not need much space now, the situation could be very different in 12 or 18 months' time.
Whether you're looking for office space, a factory, warehouse or a shop, it is essential to make premises a strategic issue. You need to look at your business plan to gauge what your future premises requirements are likely to be, then find the solution that gives you sufficient flexibility to meet these needs.
1. Present and future premises requirements
Consider whether you even need company premises at this stage
- Depending on your type of business, you may be able to work from home in the early stages - and recruit people who can do the same. Costs are kept down and you gain extra flexibility.
- You may have a clearer idea of what your space requirements will be six to 12 months down the line.
- There are mailbox rental and telephone answering services that you can use to ensure that you make a professional impression on customers. It is also possible to rent meeting rooms by the hour in a range of venues.
- Many science parks offer a 'virtual office' service which provides all the benefits of being located at the site, without you being physically located there.
- If you employ homeworkers, make sure you check the legal requirements you need to consider.
- Unless you are moving into serviced offices or taking premises on a licence, it may take between three and six months to sort out suitable premises.
Assess the minimum amount of space your business currently requires
Elements to consider include:
- sufficient space for employees to work in (consider whether you can optimise your use of space with flexible working arrangements and hot-desking);
- staff rest areas and toilets;
- production and other equipment, and furniture;
- areas for storing goods and for loading and unloading;
- meeting rooms, phone and IT systems;
- walkways, exits and access routes;
- health and safety guidelines (eg at least 11 cubic metres of space per employee)
It can be helpful to draw up a floor plan of your premises
- Include all items that need to go in it (eg equipment).
Analyse how your requirements will change over the next four years
- Check your business plan to see what staffing levels you are anticipating during this period.
- Consider whether expansion of or changes to your business activities will require more space. For example, if you are intending to scale up production of your product in year three and will need to install new production lines.
- Look at different scenarios based on the business expanding more and less quickly than you had hoped. Work out how much space you would need in each case.
Decide the strategy you need to adopt on premises
- Consider how much flexibility you require in your approach to premises to cope with the scenarios you have examined. For example, if you are unsure how quickly your business will develop, you may want to opt for a licence.
- See License, lease or buy.
Consider whether outsourcing might be appropriate
- Outsourcing some of your business processes - from accounts to IT or even manufacturing - could cut space requirements. This is a key decision that goes to the core of your business strategy.
- Some science parks and incubation centres provide preferentially-priced products and services for their tenants.
2. The right location
Analyse which location would suit your type of business
- If you are opening retail premises, you will probably want to be based in a town centre or a retail park with significant passing trade. If you are opening a factory or warehouse, you will probably be looking at an out-of-town industrial estate.
- Analyse how important transport links are. For example, proximity to good road or rail links will be essential for a manufacturing business that receives and makes frequent deliveries.
- You may want to be in an area where there is a cluster of businesses in your field, with companies and specialised suppliers both working together and competing.
- You may wish to choose a location that is in close proximity to centres of research so that you have access to the latest developments and technology in your field.
- If the image you want to project to customers or potential investors is important, you may prefer to be located in a prestigious area.
- For some types of business, location may not be a key factor. For example, a call centre.
Consider your potential workforce
- How easy will it be to find staff with the skills you require in the area?
- Think about how easy it will be for employees to reach the premises. Will employees travel by car or by public transport? Are there car-sharing schemes in operation locally?
- If employees need to drive to your premises, parking will be an important issue for you and your visitors. Make sure you know the parking rules and allocation for your chosen site.
- Are there local facilities (cafés, restaurants, hairdressers, sports facilities etc) that will make it easier and more pleasant for staff to work for you?
Look at the costs of different locations
- New towns and developments could be cheaper, but may not be appropriate for your firm.
- Prices will be lower in areas that have a significant amount of vacant commercial property. But be careful - this could be a sign that the area is not good for trade.
- Some local authorities provide grants or other incentives for businesses that set up in disadvantaged areas. For example, enterprise zones.
- Some buildings will be more energy efficient than others and will have lower running costs as a result. Check the Energy Performance Certificate (EPC) of any building you are interested in for an indication of likely energy costs.
3. License, lease or buy
Taking a licence may be an option in the short term
- Licences are straightforward arrangements that can be as short as two weeks. You can usually terminate the agreement at short notice.
- A licence can be a good option if your future needs are difficult to predict. Going into a serviced office block, for example, can help you to expand easily by taking up extra available space or moving to more suitable accommodation in the same building.
- A licence may also be appropriate if you need space quickly or if you do not want to make a big commitment to premises. Look for 'easy-in, easy-out' terms.
- You will not need to spend a lot of money up front. Licence fees are usually paid monthly in advance, with one month's rent being the typical deposit. Solicitors' fees will also be low.
- Some councils and local agencies provide subsidised workshop units, space in 'pop-up shops', business centre offices and space in science parks.
- The licensor (landlord) usually takes care of maintenance, rates and most insurances as part of the fee.
Licensing has some key disadvantages
- You are not legally a tenant and do not enjoy the same legal protection. The licensor can ask you to leave at short notice and you have no right to renew the licence at the end of the term.
- They can also increase the licence fee if you wish to renew, or decide you can only remain in the space if you sign a lease.
- The variety of premises available to license is relatively limited. Small offices, studios, laboratories and workshop units are available in many parts of the country. You may have to lease or buy if your requirements are more specialised.
- You may be unable to alter or improve the premises.
- Your neighbours could change frequently and their activities may reflect badly on your business.
- Licences need to be drawn up carefully or they might be interpreted in law as a lease. Consult a solicitor or chartered surveyor.
Leasing your premises offers longer-term stability
- Leasing is a good option as your business becomes more established and you require more security.
- It gives you a stable base. You agree to occupy the premises for a fixed term - typically between three and 25 years.
- There is far more choice available than with licensed property.
- Leases are becoming increasingly flexible. Many run for no more than five years and have break clauses every six months. Most leases provide for rent reviews, allowing for adjustments according to market levels.
- You may receive incentives such as a rent-free period to take up a lease.
- With consent from the landlord, you can invest money in altering and improving your premises.
- The landlord is usually responsible for external repairs and maintenance of common areas, while you may have responsibility for internal repair work.
Leasing also brings some disadvantages
- You may be liable for the rent for the entire period of the lease, even if circumstances change and you need to move on. Although you can generally sub-let, you are still likely to be liable if the rent is not paid.
- There is more of a financial commitment than with a licence. Rents are typically paid quarterly in advance, your deposit could amount to six months' rent and the legal fees involved are far higher.
- When you move out of leased property you may be hit with a hefty bill for dilapidations (repairs to the property). It pays to negotiate your liability for repairs carefully when the lease is first agreed.
Buying the freehold of commercial premises is a major commitment
- Owners of premises tend to enjoy greater flexibility than a tenant on a long-term lease because they have the option to sell up, sublet or lease the property out if it becomes unsuitable.
- Purchasing can give you the greatest degree of stability. With a fixed-rate mortgage there should be no large increases in your monthly outgoings.
- But buying is expensive, of course. Even if you have sufficient funds, you will need a deposit of at least 20-30%.
- Owning commercial premises can be a good investment in the long term. It can also be useful when seeking finance for your business.
- Repairs and maintenance will be your responsibility.
- Buying is likely to be time-consuming and will involve considerable legal fees - as will selling.
- Buying premises is a major step, so take expert advice.
4. Science parks and incubation centres
Consider whether taking space in an incubation centre might be suitable
- Incubation centres provide office and workshop space to small businesses, typically on an 'easy-in, easy-out' licensed basis.
- Tenants usually get all the benefits associated with a normal serviced office or workshop space, such as a receptionist, meeting space and all-inclusive bills
- You are also likely to get on-site access to business advisers who can help in areas such as accessing finance, marketing, HR and IT.
- Incubation centres provide communities of like-minded entrepreneurs and companies that can network with each other and share expertise.
- Some science parks also offer incubation facilities.
Science parks typically provide space for companies involved in research and innovation
- The term 'science park' can be used to cover a range of developments, including research parks, technology parks, technology centres, innovation centres, bio-incubators and technology-based incubators.
- Science parks provide space for businesses of all types and sizes. The spaces available may include offices and laboratory space.
- Additional services might include a fully staffed reception, meeting rooms and advice on issues such as business planning and raising finance.
- Science parks offer extensive networking opportunities with other firms and can also help to attract a skilled workforce to an area.
- Banks and potential investors may have more confidence in new businesses located in a science park or incubation centre.
Check costs and conditions
- You may have to be in a particular industry to qualify or require a business plan that meets certain criteria (reaching a fixed turnover in a set timescale, for example) to get space in a science park or incubation centre.
- Occupancy costs vary. Sites in sought-after areas usually cost more than in a normal business centre and leased premises.
5. Searching for business premises
Draw up a specification
- This should include information such as whether you want a lease, licence or freehold; location; price; the size of premises; and any other specific needs. For example, do you want additional services included in the price?
- Check which planning category your business comes under.
Contact commercial agents in your chosen location
- Take your business plan and specification with you when you visit them. Ask agents about the state of the market and get them to send specifications of different premises.
- A benchmark of the total cost per square metre (including rent, rates and service charges) can be helpful in selecting premises to view.
Check relevant publications and websites
- Check commercial agents' websites, local newspapers, property websites and magazines.
Always view interesting premises and check their condition
- Make sure the premises are structurally sound and that they have adequate lighting, plumbing and heating.
Make the most of contacts and local information sources
- Personal contacts may know of suitable properties. Business advisers, the local authority's economic development department and your local chamber of commerce may be able to help.
Consider getting expert help from a chartered surveyor
- Surveyors can work on your behalf, viewing several premises before recommending a shortlist to you. While commercial agents work for the landlord or seller of a property, a surveyor will protect your best interests.
- They will also be experienced in negotiating the terms of contracts.
- Find science parks belonging to the United Kingdom Science Park Association (01799 532050).
- Search for business centres through the Business Centre Association.
- Search for business premises through Daltonsbusiness.com and Estates Gazette propertylink.
- Check with your local authority about properties it owns and schemes it runs in your area.
- Contact your local Enterprise Agency, Local Enterprise Partnership, local chamber of commerce or trade association for property advice.
- Find a surveyor through the Royal Institution of Chartered Surveyors (RICS).
- Find a solicitor through the Law Society.
- Find information on Enterprise Zones from the Department for Communities and Local Government.
- Read guidance on planning permission for working from home on the Planning Portal.
- Find health and safety guidance from the Health & Safety Executive.