Thursday, January 22, 2015

The Coffee Shop Office is losing its froth

Let's face it, it may be cool and hip to be mobile and work in a coffee shop, but meeting clients and trying to have a meaningful conversation is difficult to say the least.

And not to mention dangerous for your business. This is New Orleans after all; we are all 1-2 degrees of separation from each other. The odds are pretty good that someone in that coffee shop is in your industry or knows someone who is.

Not that anyone would eaves drop on your private conversation intentionally, but they can't help but overhear you when you are sitting 24" away from them.

Can your afford an Office or a Coffee Shop

And its hard to be open and speak freely to a client when you know you are on stage for the entire shop to see and hear. This "holding back" could be dangerous for you professionally by restraining your body language and altering your voice inflection.

While the stigma of meeting in a coffee shop may have diminished in most business circles, it still is in the back of the mind of either you or your client.

But one would argue that the cost, basically the cost of a cup of coffee, out weighs by far the expense of maintaining an office.  Even an executive office, which are promoted as being an inexpensive alternative to the home office and coffee shop, is not really "inexpensive" to most professionals and freelancers.

Read:   Can your afford an Office or a Coffee Shop

For some the atmosphere and smell of coffee works, for others it doesn't.  But it is still a nice Friday get away though.
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Does natural light improve productivity?

It does in this office.

Do you need space like this?
Click the picture:

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Can your company afford an Office or a Coffee Shop?

While the coffee shop has gained popularity over the past many years or so, most businesses, if given the option, prefer to have an office, a home base.

But most entrepreneurs and business people don't connect the cost of an office or retail space with any business analysis.  Sometimes its just a gut feel; yes, that's seems like a reasonable amount to pay.

The best way to analyze the cost of an office is a very simple calculation.  

What is the percentage of your total annual rent divided by your  gross annual income?

For example, if monthly rent is $500.00 or $6,000 per year, divided by an annual gross revenue of $100,000, then the percentage of rent vs. income is 6%.  This is average for retailers. 

The formula could also be used to draw a comparison of rent expense to your other expenses, such as advertising.  

If you use the percentage method, you can use between 6-8% to see if you are currently making enough to support an office.  So if you are grossing $50,000/year, you can afford an office expense of between $3,000-$4,000 annually or $250-$333 per month.

For office users with larger staffs, sometimes a per employee figure is used, which will differ based on type of building, amenities and which market you are located in.  

So if $200 per employee is used, and you have 3 employees, you should look at rent of approx. $600/mo.  And this is why you see incubators, shared offices and executive offices offering an individual desk monthly rent cost of around $200.

Which means that if your company is not generating or does not have approx. $120,000,($600/mo x 12=$7,200/.06=$120,000)  then you will burn through cash faster by renting too much space.

Use both methods or research recommendations on rent vs. revenue and cost per employee calculations to see what is right for your situation.

This is a key factor that is overlooked in most start-ups and professionals business planning.

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