Adding office space may seem like a no brainer. It isn’t. There is much at stake and many factors to consider. In fact, I get more requests for consultation on this topic more than on any other. It is complicated.
Most owners move into a new space that has some breathing room, i.e. some room to grow. But with even the best prognosticating, and if we succeed in growing, we may reach the limits of our current space more rapidly than anticipated.
Table of contents
- Reaching the limit
- Step 1: Assessing the demand for our services
- Step 2: Assessing our options
- Step 3: Figure out what can you afford
- Step 4: Evaluating the timing and growth rates you expect
- Step 5: Create a spreadsheet of your options
- Step 6: Make the decision
- Step 7: Line up your contractors and financing
- Step 8: Create a new staff recruitment plan
- Adding office space
Reaching the limit
Space becomes an issue when we need to hire or expand but have no room to accommodate the expansion. This is especially problematic when the demand for our services is high. It is frustrating to have space limit our ability to grow. We may want to hire another colleague, but there is no office for them.
We never want our physical environment to limit our ability to achieve our mission and business goals. And yet the reality is that adding office space is one of the most expensive choices owners make. So how do we know it is the right time? I am proposing eight steps. In another post, I will discuss whether it is best to stay and expand or to move to a new location.
Step 1: Assessing the demand for our services
Before launching into the expense of adding space, we need to do an honest assessment of a few things. First, do we have some pent-up demand that will be released by adding a new person? We do not want to enter into the expense of new space without the ability to quickly fill the space with staff and productive activity.
Second, will the new space add capacity for generating revenue? We can want a larger waiting room, more cushy space for our support staff, or even larger offices for everyone. But these will not increase income unless we also create more offices that allow us to hire more staff who will generate more fees. The simple truth is that the way to finance more space is with more billable activity.
Step 2: Assessing our options
The next step is to assess our options for expansion. Are their affordable options for adding space in the same building? This one can be tricky. It requires the cooperation of your landlord and sometimes some creativity with architects and designers. Most of the time, landlords want to help you solve your space issues. They know that if you cannot find the space you need in the existing building, you will move. In most cases, they are right. Space should not constraint a business from growing to the size it needs to.
You may also want to look around at options in other buildings in your community. In the end, you may not want to move but there are times when the next phase of growth requires a move to a completely different building. As I mentioned my post Grow, hire, run out of space, repeat . . . forever, in my history, I had several times that required a complete move to a new location, usually in the same community.
Step 3: Figure out what can you afford
You will want to consider what you can afford when adding office space. Do you have the financial capacity to pay for the build-out and the increased rent? Will the landlord finance the build-out costs and add that to the rent? This is usually preferable to using your own credit or savings.
If we do this right, then the financial strain is usually a short-term challenge. In theory, once the new space is maxed out, it will more than pay for the start-up costs and any additional expense. We generally estimated that adding a new office and putting a full-time therapist in it would contribute $20,000 per year to the practice. The expenses needed to be less than that to come out ahead.
Covering the start-up costs may require financing or short-term loans. Banks are usually willing to help if you can show how the extra space will increase your income sufficiently.
Step 4: Evaluating the timing and growth rates you expect
Mental health practice is mildly seasonal. That means that there are predictable times when budgets are lean and demand is temporarily muted. For most practices, summer is the slowest season. Fall and winter, quite busy. Taking the seasons into account when adding office space may reduce financial stress during the startup phase in the new space.
And of course, we want to have new hires in the wings ready to use the new space. The goal is to get the new space up and running so it can facilitate increased activity and income.
Step 5: Create a spreadsheet of your options
The goal is to make the best predictions you can about how profitable the new space will be. And we want to get to that profitability as rapidly as is reasonable. The spreadsheet helps you see how the expenses come online in order to compare those numbers to the income that is also coming online. At some point, you want to see the return on investment in positive numbers. You can make adjustments to your spreadsheet as you go along. The numbers will get more accurate as time progresses.
Step 6: Make the decision
Once you have collected all the info on each of your options, you are ready to make your choice about adding office space. In truth, you probably knew your preference as you were moving through these steps. But there are times when putting everything on paper will show some surprises.
And when making the decision, we want to be thinking further out than just the next year. When I added space, I wanted to be thinking in terms of what I will need five years out. The whole expansion process is so expensive and time-intensive, we want to have breathers between projects. And we need time for other things. We need time for hiring and training staff, updating business processes, and just settling in.
Step 7: Line up your contractors and financing
Most of us do not have much experience in general contracting. We may need to ask for help. Sometimes the landlord will do the general contracting. This can work well but you do lose some of the control over the calendar and sometimes quality.
Over time, we developed relationships with a team of subcontractors. It always went best when we ran the project. And I have to say, part of that was that I enjoy working with contractors. I also had staff around me who like it too.
Figuring out the money means either utilizing your savings or securing financing. Whichever you chose, do not allow yourself to be starved of cash. You need enough for your normal business operations while managing the new expenses associated with the new space.
Financing requires working with your bank. In general, banks want you to grow. They can be very helpful. And if you show them your spreadsheet, they may have their questions but will generally get on board with your plan. I have never had a bank stand in the way of growth. That is their game too. Furthermore, they love having you in debt, as long as you can pay it.
Step 8: Create a new staff recruitment plan
While you are deciding to add space, you should, at the same time as building out the new space, work on finding the people that will fill that space and make it productive. It is best if we focus on both goals at the same time.
So really we must be the project manager and general contractor for the build-out and at the same time, the job recruiter for the new positions. Even if the timing is not working perfectly, you need to keep on it. Our job is to do the right things every day. Succeeding at both jobs increases the likelihood that it will all come together.
Adding office space
So our list is pretty clear.
- Assessing the demand for our services
- Assessing our options
- Evaluate the budget for each option
- Evaluate timing and growth rates
- Create a spreadsheet of your option
- Make your decision
- Line up your contractors and financing
- Create a new staff recruitment plan
When we stay on it, we can overcome the challenges of limited space. And pick up some new and fun skills too.