How Small Business Can Manage Growth

The best problem a small business can have is that it’s outgrowing its space. That means you have so much new business that you’re hiring new people to handle it. And as great as it feels to be growing, managing your space can still be problematic: when is the right time to commit to more room? And are you better off buying your space or renting it? And if you choose to rent, should you lock in a longer term or leave yourself more flexibility with a shorter lease?

Let’s consider each question in turn, starting with:

When is the right time for me to expand?

The time to go all-in on an upgraded business space is not when you’ve landed one big new order. Before committing to a larger space – and the expense that goes with it – you want to be reasonably confident that you’ll have the ongoing business to support it. The two best measures of early business success are customer-service scores and repeat business – good feedback from customers (you should always be asking your clients about their experiences with your business) means they’re telling other people about your products or services, and repeat customers are telling you with their money that you’re doing a good job for them. If you see your business pick up with good results in these two critical areas, then you’re probably in for sustained success, and you’re going to need more room to handle it.

So your business is growing, and you need more room, which leads to the question:

Shoud I buy or rent space?

This is a thorny question, because it’s affected by many more variables than we can cover here. I think it’s usually a better idea to rent, even if there is modest financial benefits to owning vs. leasing, simply because I believe in doing what you do best. And, unless your business is commercial real estate, managing property is probably not what you do best. If you do buy, you’ll have to make sure the space is maintained, so the HVAC, plumbing, sewage, and electrical systems, the roof and stairs and elevators and restrooms and kitchens and parking, they all become your responsibility. The time and energy you spend managing your property comes out of the time and energy you have to devote to your business, and I suspect that the return to you in savings on real estate isn’t as great as the opportunity cost of using that time to further your own business.

Which is not to say it never makes sense to buy commercial property for your business. If you have the means to do so (you’ll need a significant down payment to buy a property) and you think you’ll almost certainly be in the building for at least seven years, then it might be a good decision to buy instead of leasing your space.

So you’ve decided to lease your space so you can focus your attention on your business:

Should I opt for a longer-term or shorter-term lease?

Simlar to the buy vs. rent question, the answer here depends on how stable you think your space needs will be. Longer-term leases usually net more favorable costs, so the real question is how long you think you’ll be in the space before your needs change again. While you certainly can break your lease if your needs change, doing so will take more time and energy to manage that transition compared to a shorter-term arrangement. Unless the savings are dramatic, I prefer to keep as much flexibility as possible – business, especially small business, can be unpredictable, and there’s value in keeping your options open so you can take advantage of opportunities as they develop. If you want maximum flexibility, one option to consider as you grow is using a coworking office, either as your first professional space or to help you manage the transition from a smaller office to a larger space. Coworking comes in many different forms, but most include private offices, dedicated desks, meeting rooms and shared space for working, and providers are usually happy to work with you to meet your specific needs. They can be a boon to small companies that are growing.

Like the rest of your small business, managing growth can be challenging, and like the rest of your small business, when you get it right it will yield tremendous results!