Finding the right office is an essential step for any business, however – it is also crucial to ensure that the cost of the space is within budget.
Whether considering a serviced office or a traditional leased space, calculating an accurate budget will help you find a workspace that supports your operations without straining your finances.
Here is our step-by-step guide to calculating your budget for office space.
Step 1: Assess Your Business’ Finances
The first step in calculating a budget is to assess your business’ finances. Review your revenue, cash flow, and profitability to determine how much you can spend on an office.
Office rental agreements require monthly payments so it is essential to plan your cash flow accordingly to make sure that your business can sustain these ongoing expenses.
A sustainable budget should be based on long-term affordability and not affect other essential business expenses.
Step 2: Allow Up To 20% of Gross Revenue for Office Space
In our experience finding office space, we have found that many companies allocate up to 20% of their gross revenue for renting an office. This percentage varies according to the size of the company and the industry. For example, start-ups often have a lower budget compared to established organisations.
The right balance is key, as overspending on office space can reduce revenue for expansions and investments. On the other hand, underspending on office space may lead to inadequate space or facilities, which reduces productivity.
Step 3: Compare Types of Office Space
Understanding the types of office space will help you make the best decision to suit your budget. The main types of offices are:
• Serviced Offices - These are fully furnished offices provided at an all-inclusive price. Although they may seem more expensive, pricing includes reception services, utilities, and shared amenities like meeting rooms.
• Traditional Leased Spaces – These can appear cheaper per square foot, but they require businesses to manage their own utilities and maintenance.
• Coworking Spaces – These are shared office environments with flexible membership options ranging from a day to a year. However, they can lack privacy and may be unsuitable for larger teams.
Step 4: Identify Essential vs Optional Office Costs
When creating a budget, it is important to distinguish between essential costs and optional extras. Prioritising essential expenses ensures that your office has the basics and operates smoothly.
Essential costs include rent, business rates, insurance, and utilities, which should form the basis of your budget.
Optional costs such as branding and extra amenities like fridges or coffee machines can boost the working environment, but they should only be considered if your budget allows.
Step 5: Be Aware of Hidden and Varying Costs
When renting office space, it is important to be aware of hidden and fluctuating costs.
Service charges, maintenance fees, and business rates are not included in leased spaces and should be accounted for. The cost of utilities can also vary seasonally. For example, heating bills are higher in the winter, so businesses should be prepared.
Even with serviced office pricing, which is all-inclusive, you should ensure you are aware of any hidden costs that may not be included.
Step 6: Allocate Budget for Deposits & Upfront Costs
Securing an office often requires a deposit upfront, which should also be factored into your budget.
The deposit for a serviced office is typically equivalent to 1 to 3 months’ rent, whereas the deposit for leased space can be much higher.
You should also consider the cost of setting up the office, such as buying furniture and setting up IT. Serviced offices require minimal set-up costs, as the provider handles this.
Step 7: Allow for Business Growth
Businesses must anticipate their future needs when deciding on an office space budget. Allocating an extra 10 to 20% as a ‘buffer’ can help towards unexpected costs or expansions.
Hiring new employees will increase the space requirements, so it is key to plan for business growth when choosing an office. A solution to this is to offer remote or hybrid working, which can save office space and, therefore, money.
Step 8: Break Down Your Final Budget
A well-structured office space budget should be broken down into the following:
• Fixed Costs – Rent, business rates and utilities.
• Variable Costs – Maintenance, office supplies and IT expenses.
• One-Off Costs – Deposits, furniture, initial set-up fees.
Budgeting tools or spreadsheets can help you monitor and adjust your expenses as required to ensure your finances align with your business performance.
Calculating an office space budget requires attention to detail and extensive pre-planning. The eight steps above will guide you through each stage, from assessing your finances to breaking down your final budget.
Whether moving into a serviced office in London or leased space elsewhere in the UK, an accurate budget will help you find an office that meets your needs and finances.
