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How to run away from home (office)

Taking the home business out of the homeTired of working out of the basement and holding client meetings in your dining room? Sick of scheduling your work day around errands, lunch and laundry? Maybe it's finally time to take the "home" out of your home-based business.

If you want to hire employees, present a more polished image, add storage space or just separate your family life from your professional life, consider leasing office or retail space.

But how do you know if you're really ready to make the leap? Home office expert Lisa Kanarek suggests looking at four main factors.

  • Growth: Are you growing so much that you need to add employees? Is a business that started in a spare bedroom or basement now taking over the house room by room? Do you need more storage space for products or materials? Is adding on to your house not an option?
  • Home atmosphere: Are you isolated at home? Do you miss the corporate office setting? Or, on the other end of the spectrum, are there too many people at your house to get work done during the day?
  • Family support: Does your family understand that a home business is hard work or do they expect you to keep up with chores "while you're home anyway"? Do you have to fight for phone and computer time? Are you getting all your phone messages?
  • Image: Do you really want clients, suppliers or employees coming into your home? Will your surroundings help or hurt your professional image?

If you decide you want to relocate, Kanarek recommends shopping office suites -- shared office space with amenities and receptionist already provided. "These are growing," says Kanarek. "They become more important to people because of that fear of office space."

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"It's kind of an interim step," says Kanarek, who estimates that such arrangements are only two-thirds the price of conventional office space. "But you get the image."

Location, location, location
Locating a home office is easy. You have your pick of the extra bedroom, the dining room or the basement. Want an office with a view? Take the laptop onto the patio.

Finding leased space takes a little more forethought. When Donna Taylor finally decided to move Human Capital Developers, her Athens, Ga.-based consulting firm, out of her house and into an office, she shopped her favorite areas of town. "When I really got a good sense about it, then I started calling Realtors," says Taylor, who has been in her new 1,200-square-foot office since February.

Since 90 percent of her clients are outside the state, cost was more important than location. She leased a property on the opposite side of town from where she lives -- but at substantial savings. The property was attractive and well-maintained -- and the landlord was willing to throw in the painting and small remodeling touches she wanted for free. She signed a two-year lease with two one-year options "because I knew I liked the space and knew I could grow."

For other businesses, especially those depending on retail foot traffic or access to employees or goods, location is more important.

"Determine who your market is and determine where this individual in this niche would go to get your particular product or service," says Jim Lowry, the chair of the marketing department of Ball State University. "Then you go to where that is."

Taylor, like many smart business owners, built future rental expenses into her overhead from day one. As a result, she was able to improve her surroundings without raising prices. For business owners who don't plan ahead, moving may mean choosing between new office space and old clients.

Several other factors can make or break a business: Do you need to be near interstates, airports or certain distribution centers? Will your employees need parking or do you need a site close to public transportation? How much space do you really need? Is the zoning compatible with your business?

Estimate how much space you need now -- and what you will reasonably need if you grow. You can do this in one of two ways.

  • Based on past performance, how much space are you likely to need in the near future?
  • If you manufacture, distribute or sell a product, look at the industry standards for profit per square foot, and decide how large an operation you can comfortably manage. Trade associations, trade groups and suppliers can help with the data.

This is it
Leasing a building is like buying a house -- get to know the area and meet the neighbors before you move in. Talk to other tenants and find out how long they will be leasing. "You may have someone who complements you next door, but they may move out in a year," says Lowry. Make sure the business community that you see when you sign the lease is the same situation you will enjoy when you move in.

In addition, talk to tenants about foot traffic, utility bills, the landlord or anything else that will help you evaluate the property.

Still love it? Then it's time to negotiate with the leasing agent -- carefully. "They're sharks," says Michael Sternik, a counselor with the Service Corps of Retired Executives, a nonprofit group dedicated to assisting small businesses. "They will promise you anything to get you to sign that lease."

In the end, business owners are entitled only to what is spelled out in black and white. Who will pay for renovations to the space before you move in? Who pays for repairs to the roof, plumbing, heating and air conditioning? If you are responsible for repairs, negotiate a ceiling to your liability.

Consider hiring a commercial property inspector. Their relatively small fee could save you thousands. If the air conditioning unit is getting ready to go or the roof is old, it could give you ammunition to negotiate a better lease.

Find out what costs will be passed on to the tenants. Real estate agent and former leasing tenant Laura Dugan remembers an Austin, Texas, landlord who passed virtually every bill on to the tenants -- from building upgrades to the cost of the annual building Christmas party. The upgrades, she says, "were a huge amount. What they were doing was upgrading the space to attract more expensive tenants." Caught by rising real estate values in what was turning into a high-priced, high-tech corridor, Dugan eventually moved her business back into her home.

Also ask about monthly maintenance fees. What's included and what's your recourse if the property isn't properly maintained? What about growth? Will you be given first option on adjoining property, if it becomes available?

Get everything in writing and have your lawyer review the contract.

Wiggle room
Even while you bank on success, build in a back door just in case things don't go as expected. For some lessees, this means the ability to sublet the property -- for others, the ability to walk away entirely.

Sternik doesn't put much faith in subletting. "It sounds easy but it isn't," he says. If one business fails in a space, others will be hesitant to locate there. In addition, the property owner could set criteria that makes it next to impossible to find a qualified tenant. Instead, Sternik advises negotiating a "kick-out clause" -- an agreement to terminate the lease in exchange for a few months rent.

Dugan ran her real estate business, West Austin Properties, from her home for 15 years before she leased a 3,000-square-foot office in the early 90s. Moving into leased space enabled her to add 25 agents and a handful of support staff. But after a few years, Dugan scaled back, keeping only one associate, and moved the business back into her home. Far from being a failure, Dugan has focused her business on the relocation market and is taking in more profits now than when she had an office full of agents. Last year, West Austin Properties posted in excess of $25 million in home sales -- something she wouldn't be doing if she had kept the business in her home all along.

"I got my Ph.D. in real estate," Dugan says of the move. "I learned so much. It was a great experience. Plus, it let me leverage myself."

Dana Dratch is a freelance writer based in Georgia
If you'd like to make a comment on this story,
e-mail bankrate editors.

-- Posted: Aug. 14, 2000


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See Also
Lease or buy? How to decide what's best for you (6/5/00)
Buying and remodeling a building (2/18/00)
Negotiating the best deal on a building (12/1/99)
More to home businesses than an office in the den (7/15/99)

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