• Hidden Costs of Office Space

    Friday, May 9, 2014

    5/9/2014— Jon McKay

    In the past year, Technical Machine has worked out of an incubator, college dorm rooms, various apartment buildings, and a co-working space. But we’ve always wanted an office to be able to hack on projects with other people and to generally be our loud, boisterous selves without upsetting others. We started looking for a space in March, and now we’re finally moved into a beautiful workspace in Berkeley!

    As with most tasks involved with starting a company, I had no experience finding and leasing an office. As someone who hasn’t lived in the same place for more than a few months since 2009, the process of securing a multi-year lease was pretty abstract. In my mind, the only operating figure was rent but I was wrong. Some of the logistics will be familiar for anyone who has rented housing before, but others are unique to offices.

    Below is a list of costs associated with leasing an office that may not be apparent if you’re in shoes similar to mine:

    • Rent: I thought this would be a simple term in the lease but it turns out to be way more complicated. Obviously, rent will vary from location to location; property in Berkeley is about $1.50 per sq. foot, whereas SF proper is about $4 per sq. foot. You will probably be required to pay several months of rent up front. You might have more negotiating power if you can pay more upfront than the landlords originally ask for. Here are some other good questions to consider:
      • How many years will you be leasing at this price, and do you have the option to stay longer?
      • If you are staying longer, is the price for the extension pre-negotiated or will you figure it out in the future?
      • What’s the fee for paying rent late?
      • Can you rent your space out to other people? For example, if you wanted to let a smaller companies rent extra square footage.
    • Security Deposit: There will be a security deposit to make sure you don’t destroy the building. Ours was $10k for the 2800 sq. feet workspace.
    • Insurance: Most leases will require you to get several types of insurance before you can step foot on the premises. Your insurance costs will vary by the insurance coverage and size of your company. As a benchmark, our insurance for six people will cost about $1500 a year. If an incident occurs, you will have to pay a deductible – ours is $500. I recommend asking around for an insurance broker to save you from having to talk to insurance companies directly. They charge anywhere from 15 - 25% of the annual cost. The common types of insurance are:
      • General Liability (if a non-employee gets injured on the premises, someone drives their car into a wall, etc.)
      • Property (cover the items inside the property such as computers, furniture)
      • Business Interruption (if something outside your control prevents you from doing business and you lose sales)
      • Worker’s Compensation insurance (an employee gets injured on the job).
    • Utilities: Gas, electric, and water! Don’t forget to set it up before you get there. As with personal housing, you may be splitting your utilities with other tenants of the property, or you’ll have to set it up yourself. I don’t have a good estimate of how much utilities will cost per month yet but I expect it to be several hundred dollars.
    • Internet/Phone: You may not need phone service, but you’ll need internet. Check with the landlord to see what service is already available at the building. You can get a cheaper installation cost with a service that’s already routed to the building. This will cost you $100-$200 per month depending on the speed of internet. I recommend buying your own cable modem and router.
    • Furniture: As we found out the hard way (literally), you’ll need things to sit on besides the floor if you want your employees to be happy and healthy. We went to IKEA, bought about $4k worth of shelves, desks, chairs, and conference tables. The real kicker here will be the time spent putting it all together. We opted to use TaskRabbit to hire to guys to come put it together for us. Instead of paying IKEA $3k to install it, we paid for 15 man hours with only $300. Don’t try to do it all yourself!
    • Miscellaneous: You never really notice all those little items you depend on every day until you try to work in an empty office. I’m talking about tape, scissors, kitchen towels, printers, drills, vacuums, soap, and TP. This is where you could really break the bank. I’d estimate that we’ve spent about $2k on these types of items so far.
    • Time: The biggest cost here is time. Negotiating lease agreements back and forth, opening up Amazon shipments, online shopping, putting checks in the mail. It takes hours out of your day and pulls your attention away from the product. You really need to outsource as much as you can. Use insurance brokers, real estate brokers, TaskRabbit, Amazon Prime. If you have the money, it’s totally worth it.

    If we include all those factors, (non-recurring costs spread out over the remainder of the lease), the actual cost per month is about 20% higher than just rent alone. Be sure to account for that in your planning.

    Now that we’re starting to get acclimated to the new office, I love it and think that the whole process was totally worth it. I can’t wait to get some picnic tables in here, start hosting events and meet the community. If you’re in the bay area starting next month, keep your eye out for meetups! Or just drop on by:

    Technical Machine
    1101 Cowper St.
    Berkeley, CA 94702

    –Jon

    #jon mckay #tessel #technical machine #office #startup #budgeting #startup advice

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