The strategy of a family business is fundamentally determined by the location and functionality of your office or factory. We go over a few things to consider.
Your office is a function of HR
If your business is a services based business your office location is focused on your team. Having an office that is accessible for clients is important – however many high value clients expect a services business to physically attend their office.
As an example our office is in Northbridge – and we are as close to the Perth CBD as you can get without being in it. This has a significant advantage for our team as they do not have a train station interchange, parking is easy (compared to Osborne Park etc) and there is a large amount of café’s, pubs and nightlife in the area. Further – children’s day care is close and the city has its own high-school.
If we moved our office to say, Gnangara, we would have to pay our team significantly more to retain them. The increase in wages would be much more than the rent we pay and the culture of the office would be severely damaged.
The amount of spare space determines your growth
If your factory has the capacity to grow your business can grow. However if you determine your factory or office with no spare capacity to grow you are fundamentally indicating that your business will effectively remain at its current size.
Rapid growth businesses need flexibility
The rise of groups like WeWork and Victory Offices are suited to high growth start-ups. Many start-up businesses simply do not know how long they will be in business and they do not know how many staff they will need in 3 months-time. So the risk of taking on a long term liability that might be either wasted space or quickly obsolete is too high.
A short term lease, although typically more expensive, suits a high growth volatile business infinitely more.
A high rent cost increases your break-even point
The break-even point of a business is an accounting concept. It is simply the level of income needed for a business to generate before it needs before it starts to make a profit.
A business with a high break even point has the capacity (normally) to generate large profits with a high degree of leverage. Likewise businesses with a low break even point are typically limited with the business infrastructure in terms of their capacity to generate super-sized profits and the risk of the operations is much lower.
A business owner must intimately understand their break-even point when undertaking large investment decisions for their business. This is ideally done with clear and correct accounting and bookkeeping data with real-time feedback.
Getting out is important
If your break-even point is high the next best thing is to structure a low exit cost. Many office and factory leases have a “make-good” requirement – however that can range from “neat and tidy” to bringing something back to a “clean shell”.
The business, legal and tax risk of your make good clause and lease structure is important in understanding the business fundamentals of entering into a new lease.
The decision to grow or stay the same is important to family business owners. And talking to somebody who understands the risks and the cost of a decision is important to becoming a successful operator. At Westcourt our unique position as business founders and a focus on only family businesses gives us a unique insight into your operations.
Give us a call and see how we can help.
