If you’re a sole proprietor without any employees, you may wonder what kind of space makes the most sense for your small venture. The idea of renting commercial space may be exciting, but it may be hard to justify the costs of maintaining an outside office if you could work from a spare room or a garage.
But working from home and commercial leasing aren’t your only options. There are several alternative arrangements to consider, especially if your business is a small sole proprietorship. These include using a virtual office, joining a business incubator or co-op, subleasing from other businesses, or joining together with one or more other businesses to lease and share a space. Using one of these arrangements helps to project a professional image (and has many other benefits, discussed below), at a fraction of the cost of renting your own commercial space.
Let’s look at the various options appropriate for sole proprietorships.
Working from home offers convenience, cost-savings and flexibility. On the flip side, some businesses are not well suited to being run out of your home. Be realistic: Will your home be a comfortable place to meet clients? If kids are in the picture, will they create havoc? You should only go this route if the business is a good fit with your home life.
Also remember that home businesses aren’t immune from bureaucratic rules and laws, such as local zoning requirements, governing small businesses. Ditto for insurance: do not assume that business-related claims will be covered by a homeowners’ or renter’s policy. Finally, if you plan to claim the home business tax deduction, you’ll need to understand the rules for that specific deduction.
Avoid trouble with your city’s zoning and planning officials. Make sure that the business activities you plan to carry on in your home do not violate any local zoning laws. Some areas may require you to apply for a special “home occupation permit” and possibly pay a modest fee before you begin operations. (Zoning laws typically refer to home businesses as “home occupations.”)
If working from home isn’t a good fit for your business, you don’t necessarily need to lease a commercial space on your own. One popular option is to use executive suites and virtual offices.
The term “business incubator” typically refers to a facility run by a nonprofit or quasi-governmental entity that aims to support small businesses and economic development. Business incubators resemble executive suites, but they typically offer more robust business support services such as consulting with experienced business mentors; classes on topics like financial management or marketing; or financing services and loan programs.
To find a local business incubator, check with a women’s business center, small business development center (SBDC), or other business organizations in your city or region.
Most cities have art spaces, shared workspaces and co-ops aimed at artists and/or creative professionals. Look into arts organizations in your area that might be able to direct you to studio rental opportunities.
Coworking spaces are springing up all over, meant to accommodate peripatetic freelancers and nomadic professionals with flexible options, usually short-term (i.e. hourly or daily, although a few offer long-term rentals as well). Amenities might include a desk in a large room full of other co-workers; conference rooms with presentation equipment; and printing and other administrative support services.
Consider subleasing from another business that has excess space, especially if your needs are modest. Particularly in a down economy, businesses might downsize or fail to grow as expected, leaving them with unused space which can be an expensive burden (even worse if they have a long-term lease). Subleasing their excess space can be a win-win situation if the two businesses are a good fit.
Besides the space considerations, also pay close attention to lease terms (the same as you would if you were signing a commercial lease, discussed below). If the primary tenant wants you to sublease until the end of their lease, make sure you’re comfortable committing to that term. On the other hand, you’ll also want assurance that you won’t have to move in a few months if the primary tenant decides it wants or needs your space after all. If a minimum of a year or two years is important to you, make sure it’s included in your agreement.
Going in on a space with one or more other businesses or freelancers can be a great cost-effective option for sole proprietors. For example, if you’re opening a photography studio and you know a graphic designer who’s also looking for space, the two of you could find a space that meets both your needs.
Co-renters should put the details of the arrangement in a legal agreement, separate from the lease with the landlord (by the way, you should all sign the lease). Your agreement should cover issues such as each business’s portion of the rent, how common spaces will be shared (such as scheduling procedures for the conference room), ownership and lease information for any equipment, who is responsible for cleaning and maintenance, and any other important issues.