The ravages of recession are sending many small businesses from offices to the owners’ homes as entrepreneurs seek to save on rent payments.
“We’re seeing probably twice as many businesses doing that compared to a year ago,” says George Cloutier, founder and chief executive officer of American Management Services, an Orlando, Fla.-based consultant to small businesses.
He and others see the move as a necessary step for many enterprises. “We believe this recession will be deep and long, so you should do whatever you need to do to cut costs viciously,” Cloutier says. “That would include moving back into the home if it’s physically possible.”
Schroder PR, an Atlanta-based public relations firm, took the plunge. “A couple things came to fruition,” says Jennifer Sheran, the agency’s general manager. “Business was slowing a little bit and city taxes kept increasing.”
In addition, “We realized that even though we spent much of the day sitting within shouting distance, we were constantly ‘IMing’ (instant messaging) each other anyway,” she says.
Now the six staff members who were coming to the office all work from home. The company saves $6,000 per month in rent, parking fees and taxes.
Employees meet once a week at the business owner’s home. “It has really gone great,” Sheran says. The weekly meeting, which lasts four to six hours, replaces multiple shorter meetings, saving time.
“The team dynamic is great,” she says. “There is more of a sense of ownership because no one is looking over your shoulder anymore.”
Moving a business to the owner’s home makes sense for some entrepreneurs, but not all. “There are businesses that can be moved into the home and enjoy the benefit of lower overhead and not suffer any consequences,” says Eric Siegel, a small business consultant and lecturer at University of Pennsylvania’s Wharton School. “But there are clearly instances where there’s a trade-off. You gain in terms of reduced overhead, but lose in other ways.”
One problem is customer perception. “Rightly or wrongly, there’s a presumption on the part of customers that a business run from home is rinky dink,” Siegel says. “In some businesses, image matters.”
One way to check exactly how perception will be affected is to ask some of your best customers. Find out if their thoughts of you will change, and if not, ask if their perceptions would change if they didn’t already know you well.
At Schroder PR, clients haven’t noticed any changes, Sheran says. “We told most of them we’ve gone virtual. Otherwise, they wouldn’t see a difference. The phone system transfers automatically (from the old office number) to our own numbers, and we’re probably more available.”
If you’re going to hold a meeting with clients, you may want to rent a conference room so that you present a professional business image.
Schroder staffers generally meet clients at the clients’ offices. And the firm found conference rooms it can rent for about $50 for four hours.
Zoning and tax issues
Zoning is another issue. Operating a business is prohibited in some residential neighborhoods. Of course, the rules aren’t always enforced. “If you have three extra bulldozers in the backyard, it would be noticed,” Cloutier says. “But a laptop and fax machine wouldn’t.”
You can call your municipal zoning office to find out the rules in your neighborhood. And, of course, you can ask anonymously to avoid attracting suspicion.
Remember that your business may be taxed at a different rate if your home is in a different city than your office. You’ll also want to take into account the ability to write off the expense of a home office on your taxes.
“Working from home will maximize my tax deduction,” says Haris Tajyar, owner and CEO of Investor Relations International, which he is moving from an office in Sherman Oaks, Calif., to his home in Encino, Calif.
Another issue working at home is potential distractions. “You have to be very careful to separate your business life and your home life. Don’t begin to confuse the two,” Cloutier says. “So mowing the lawn because it needs it rather than making additional sales calls isn’t going to cut it,” he says.
“Your work space at home should be segregated and treated as off-limits for family members except for designated periods, just as if you were at the office.”
Sheran has an 8-year-old daughter and turns on a red lamp to let her know she’s working and shouldn’t be disturbed. So far it’s gone well.
If you have employees who will be coming to work at your house, you’ll want to consider how the move will affect them. “You could imagine a nice homey, positive environment,” Siegel says. “But maybe workers don’t want to smell your wife cooking liver and onions for dinner while they’re doing their work.”
If you have a good relationship with your employees, you can ask them what they think of a move to make sure they’re on board. “You don’t want the inmates running the asylum, but you still may want to take their pulse,” Siegel says.
At Schroder PR, “Early reports from the team show that morale has risen,” Sheran says. “People are really excited. Most of them are right out of college and they like the flexibility.”
Another factor to consider is costs that will bite into your savings from shedding rent. First, there is the cost of the physical move, along with a new letterhead, business cards, and phone and Internet service.
“You want to look at the numbers to understand the broad picture,” Siegel says. “Make sure your savings, with all costs considered, will be sufficient to warrant the move.”
For most businesses, “It’s an awful lot of savings,” says Ted Kramer, a certified business adviser for the Florida Small Business Development Center in Boca Raton, Fla. He predicts that many more businesses will make the switch from office to home.
“When we come out of the recession, I don’t think we’ll see companies come back to offices quickly, because they will see they’re saving money.”
That seems to be the case at Schroder PR. “Our people say it will be hard to drag them back,” Sheran says. “I second that. It’s probably the best thing that’s ever happened to me.”