One obstacle you may have to face as a business owner is dealing with increases in rent. The office space you rented when you started out may be worth more on the market now than it was when you began. Whether you're prepared or not, there may come a time when the owner of the property decides they need more money in order for you to stay. Many contracts are in the five-year range, though these can be shorter or longer. Either way, once that contract is drawing to a close, you need to make a decision.
If your rent is raised to the point where it is no longer economically feasible to continue as is, you'll need to consider your options. We discuss a few of these below.
Try to negotiate a better deal
The first thing you can do if you find your rent skyrocketing is to try to negotiate a better deal. Consider the request for an increase as the first step in a negotiation, and make a counter-offer instead of agreeing right away. Make the case for why you feel it's in the landlord's best interest to keep you in their building for less money. The longer you've been there, assuming you've been an ideal tenant, the more leverage you may have.
Assess your needs and determine if you should move
You should be asking yourself how important it is to remain in this location in the first place. What drew you to it in the beginning? Has anything changed? Would your needs best be served here or in another facility? It's entirely possible that this increase in rent is a blessing in disguise, which will lead to your discovery of a better location.
Is a shared office an option?
If neither buying your office space nor working from home is an option, perhaps a shared office is a possibility. If two businesses can work out of the same space, the rent can be cut in half. This won't work for every business, but if it's feasible, it can be a great way to save money that can be put to better use in other ways.
Is working from home an option?
Depending on the type of business you operate, working from home may be a viable option, especially in today’s internet-connected world. If you work alone, and you have the needed space in your home, it can be an ideal situation. If you have employees to support, consider allowing them to work remotely if it makes sense. You can save a great deal of money this way, as you won't have to pay to rent office space at all, and you'll save on associated expenses.
One option is to purchase your own office space so that you're no longer forced to bend to the will of a landlord. If your business has proven successful, buying may be a solid option for you. You'll need to ensure that the location change is not something that will negatively affect your business and that the new space will meet your needs for the long term. If you find a suitable space for sale, you can ask your bank about a commercial real estate loan.
Make changes to your budget/costs
While you certainly have options to weigh, the reality may be that you need to stay where you are and accept the rent increase. If this is the case, investigate where you might make changes and cut costs in other areas. Are there bills you're paying for services that aren't completely necessary?1 Can you adjust prices to help ease the budget crunch?2
Talk with a real estate broker
Before you sign any lease or contract, make sure you have a good idea of what's available and at what price points. Don't hesitate to reach out to a professional who can help you assess your real estate options.
1. Click here for a NevadaSmallBusiness.com article on how to cost costs.
2. Click here for a NevadaSmallBusiness.com article on pricing strategies.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.