When I started with Morrison I was their first Sacramento area hire. My time here has been amazing, but the first couple months involved a lot of commuting to Morrison’s headquarters in Chico. I enjoy our team so much the commute was hardly a burden, but with the growth of our team in the Capital region it came time to, as they say, “put down some roots.”
The question became how do we expand in a way that makes sense? A lot of options came to the surface and I wanted to share them with you, as well as their pros and cons, for the time when your organization might find themselves branching out.
If you have enough staff, work, and access to capital in many ways the easy thing to do is just to buy a workspace. This didn’t make sense for us in the short term as we’re still growing our Sacramento team.
Pros: You have complete control over any decisions to customize the location, and don’t have the extra step of negotiating with a landlord. The building is an asset on your organization’s balance sheet which means it’s also an investment, and you could find yourself with a large influx of cash once you decide to relocate. More if you don’t have anything borrowed against it.
Cons: Speaking of borrowing money, few organizations are cash rich enough to buy a workspace outright. Most often businesses need to take a loan to pay for new space, which may come with some level of financial reporting to a lender, not to mention interest in those borrowed funds. Also, the potential for legal liability if anything were to happen to someone on the premises. This can usually be mitigated with insurance, but that’s more money out the door.
This is a very common option for organizations getting into a workspace and has plenty of upside for small and mid-size companies. These are generally long term which meant it wasn’t the right choice for us.
Pros: You have a lot of options with leasing. With a good landlord you may be able to work out a plan for building improvements. It’s not a permanent choice, once a lease agreement is up you may be able to extend it or move if your organization continues to grow.
Cons: You could find yourselves in a contract with a less than friendly landlord. They may seem nice at first, but if you’re not familiar with reviewing a lease agreement and knowing what to look for, you may find yourself stuck in a situation that’s not very pleasant.
Renting from another business whose primary operations isn’t as a landlord. You may know another business owner who has some open workspace and you only need two or three desks on weekdays. Paying for the use of that space may be all your organization needs. Morrison looked very closely at this option, but in the end passed.
Pros: Only get what you need. If you need three desks and another business has that available, then everybody is happy! You’re probably getting a lower cost for the space, while the business owner is using this space to generate cash for their business. You can also get pretty creative here as far terms for your agreement. As long as it makes sense for both parties, it can be written in.
Cons: The biggest problem that you could run into here is the time when it no longer makes sense for both parties. If the business you’re renting from needs the space for their expanding operations or you suddenly need to add more bodies, but there’s no room available, you may have to find yourself relocating sooner than you expected.
A millennial take on the business park. Coworking is an office location that includes both private offices and communal areas, where people from different businesses can work in a single location. People here are often working remotely, but keep the feel and community of a traditional office space. Private office space within a coworking location was ultimately the option Morrison selected.
Pros: Depending on the site, there can be a lot of options for contract duration, but typically it’s up to you. There’s also networking opportunities with other businesses operating out of the location. You may have questions about some financing terms and you could ask a CPA you know works on site.
Cons: Depending on the site, you could find yourself in a culture that doesn’t mesh with your organization’s own. And, like leases, you could find yourself in a contract with a landlord that is less than friendly and/or not very helpful.
Morrison’s capital region office space is operating and we’re able to better serve our clients in the area. When you’re looking at expanding, no one understands your organization better than those that run it. The choice is yours, but it’s important to know all the choices you have.
About the Author
Dean Pritchett is a consultant with Morrison, working primarily in our Business & Accounting Advisory practice. To get in touch with Dean, please find contact information for Morrison here.