Home Office or Commercial Space?

In the first of this two-part series: Working at home vs. setting up a commercial office. In the second: How to plan and execute such a move

I am contemplating moving my business from a home office to a commercial office space. What pros and cons should I weigh? Any tips on making the transition?

—D.B., Dallas

Home-based entrepreneurs typically start looking for commercial office space when their businesses overflow the spare bedroom. Either sales volume or staffing needs have grown to the point where they can't be accommodated at home, or the company wants to present a more polished image to its clients and business associates.

Sometimes, entrepreneurs just don't like working at home, with all the distractions of family nearby. They want an atmosphere that's closer to what they may have experienced in a corporate setting.

All of these motivations are legitimate, says Gene Fairbrother, small business consultant for the National Association of the Self-Employed. But a longing to leave home isn't a sufficient basis for making such a crucial move.

First, you must objectively answer several questions: Will the move benefit your business growth? Will it enhance your business atmosphere and your quality of life—business and personal? Can your business afford the financial requirements of a commercial office?

"Pros and cons will vary from person to person. Of course the biggest con is the direct and associated costs of maintaining an office. However, if having an outside office can generate more income and profit—such as by expanding staff—then the costs become irrelevant," Fairbrother says.

Look at Future Revenues

Operating costs are just one of the critical issues that you should evaluate. Don't forget to factor in the loss of the home-office deduction if you're claiming that now on your taxes.

You'll be paying more for gas to accommodate a daily commute (see BusinessWeek.com, 1/17/06, "The Ins and Outs of Homesourcing"). And you'll probably have to purchase office furniture, additional equipment, and insurance, as well as pay the one-time costs associated with the move.

Still, money isn't the only consideration, says Robin Lasher, a consultant with the Tarrant County College Small Business Development Center in Fort Worth, Tex. "Although you must recognize and be able to afford all the related costs, it would be short-sighted to base your decision on costs alone. What are the current and long-term benefits to both the company and its clients? Does moving provide immediate or future opportunities that will generate revenues and profits not available to you as a home-based business? Has the convenience of home allowed too many distractions that interfere with developing efficient and effective work processes?" she asks.

The other wrinkle is that one person's "pro" is another's "con." For instance, some entrepreneurs love the ease of working from home. But others find that convenience too tempting.

"The home office and its attendant quality family time can be hard to leave. By having an office away from home it is easier to separate your business life from your family life," Fairbrother points out.

Alternatives Available

If you are hiring employees, bringing them into your home is generally not a good idea, says Jeffrey A. Landers, a serial entrepreneur and the owner of Offices2share.com. "At the very least, it can present many awkward situations and privacy issues. Also, there may be legal and insurance ramifications. Many communities have zoning laws that restrict or prohibit businesses operated from residential properties," he notes (see BusinessWeek.com, 6/12/06, "Best Places for Entrepreneurs"). Meeting with clients can also be awkward if you work from home.

But there are alternatives you might consider that don't involve moving into full-time commercial office space, says Paul Edwards, a small business consultant and author, with his wife, Sarah, of 16 books including Working From Home.

You could rent a "virtual office" that provides a business address, a receptionist, and a space to hold conferences with employees or meet with clients (see BusinessWeek.com, Summer, 2005, "The Virtual Office Gets Real") and (see BusinessWeek.com, 5/30/06, "The Library: The Next Best Thing to an MBA").

Some of these situations allow you to rent space part-time or even by the day. Outsourcing some business functions, such as hiring a fulfillment house to process orders and ship products for you, can move enough of your company offsite to allow you to continue working from home. The same benefit could be realized by allowing your employees to work from their homes, or renting storage or warehouse space, Edwards notes.

Putting on Shoes

"Sometimes staying at home means making a hard decision. What is more important to you—a larger business or the particular work style that only a home office can provide? A surprising number of people opt to limit their businesses to those that can be contained within the walls of their houses. Some people we've met have scaled their businesses back in order to return to a home office after moving out of their houses," Edwards says.

Still unsure? Robert M. Donnelly, an entrepreneurial consultant and author, lists these factors for you to consider:

"The cons: Adjustment from an informal dress and work mode to a more professional setting. Moving—no matter how small, it's always painful. You'll need time to search for the right space and time to adjust to the office and added concerns about being able to afford it," he says.

"There will be distractions from your business while all of this is going on, because no matter how small a commercial space is, there is still a lot of time-consuming planning associated with making the transition."

Going VirtualBut don't forget the pros, he says. "There's a sense of business progress and professionalism that comes from a commercial office. That's image-building for your business, and it can be motivation to take your business to the next level. It's great to have a place where you can have meetings with customers other than the diner or Starbucks (SBUX)."

Before you make a final decision, consider talking to other small-business owners who have made similar transitions, Lasher says. "Find out what challenges they've experienced and what they would have done differently."

You might also consider taking the interim step of leasing a virtual office space before you take the bigger leap to a commercial office. "It may be more expensive in the short term, but it will give you an opportunity to see how you like it and more importantly, time to adjust without the full burden of jumping right into your own space," Donnelly says.

The questions posed by this reader brought up several important issues for entrepreneurs. A follow-up column running later this week will be devoted to planning and executing such a move.

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