Choosing your workplace
One of the jokes that can be made about people starting small businesses is that the first thing they want to do is to search for premises. It is an understandable desire, as premises are tangible proof of the creation of an enterprise. However, it is possible to run a business, even with several people, without ever having separate business premises.
The concept of ‘the virtual business’ is commonplace. Given the communications available – e-mail, broadband, telephone, Skype, WhatsApp and mobile phone – it would now be possible for several people to group together, operating from their respective homes, and to create a business, communicating regularly and at length. You could also use freelancers and subcontractors, again operating from their homes, rather than employees.
At a stroke, a ‘virtual business’ removes the burden of two major overheads, rent and employees, and many enterprises discover the benefits that this brings. You could adopt this strategy as an initial phase until the business is more established, or as a permanent way of operation.
If you decide that your business cannot operate without premises, it is a very important step to take. Finding the right premises at just the right location for just the right price can prove to be extraordinarily difficult.
Many individuals setting up a retail business today do so by launching an online presence – deciding to have a physical presence with a shop is a step that must be carefully investigated.
If you decide that you really do need a shop, you cannot afford to compromise and take premises that with a bit of luck will be OK. You have to be satisfied that the premises meet all your criteria; if they do not, carry on the search until you find the right site.
Where is your business to be located?
An important first exercise would be to start with a blank piece of paper and think about location from first principles. What is the ideal location for the type of business you have in mind? At a later stage, you can introduce the constraints placed on location, such as home and family. You should know the ideal location so you can estimate the effect of concessions you are making to these outside non-business constraints. There may be further constraints, such as the lack of finance, which may cause you to compromise.
Communications
How dependent is the success of your business on communications: road, rail, air, bus? This could be important if:
- you deliver your product;
- your business is service-based to particular areas of the population;
- your business is dependent on import and export.
In these and other categories of business, an ideal location would allow easy access to the relevant parts of the country. For example, if import/export is your trade, a location within reach of a major airport could be an advantage. Or, if you deliver to the whole country, you need access to motorways.
Labour
If your business is dependent on the use of certain skills, you may find that one part of the country is more abundantly endowed with potential employees who have already acquired those skills than other parts. On the other hand, skills may be irrelevant; what you may need is a ready pool of unskilled labour, in which case some areas have higher unemployment than others.
Centres of population
Your business may need to be located near particular centres of population. If you are trying to deliver your product in large volume, being in a large centre of population may be an advantage. Or you may want to choose an area with a specific structure of population if your product or service is sold only to particular sectors. For example, if you plan to open a flower shop, you typically need a town or catchment area of a certain size. You also need a population, or substantial visitor base, well endowed with the particular characteristics of those who spend money on flowers. Your market research will help you to identify what those characteristics are.
Business clusters
Sometimes there is an advantage in setting up in an area where there are already competitors. This may be the case if customers have to travel some way and are more likely to come if there is a choice of different outlets, especially where there is a great deal of variation in the individual items being sold. This is why shopping centres are attractive destinations, but it can equally apply to, say, clusters of specialist boutiques or restaurants.
Another reason for a cluster can be access to specialist labour – for example, a science park that draws on expertise from a nearby university – or to foster joint ventures.
Suppliers
Your business may depend on supplies of a particular raw material or some other product. Costs would be lessened if your business was located near the source of supply. This could be either the main distributor of the item or where the item is grown or produced.
Government and local authority assistance
Your business may be location-independent. Thus, you can look at some of the deals that the government and local authorities produce to stimulate the founding of new businesses in specific regions.
The government designates some poorer regions of the UK as assisted areas (see www.ukassistedareasmap.com). These are areas where, under European Commission guidelines, the government is allowed to offer state aid to businesses. The current assisted areas map applies to 2020; however, the UK’s possible exit from the EU will alter the regime.
Under the Business Premises Renovation Allowance, you can get tax relief in the year you incur the expenditure for the full cost of renovating or converting derelict or unused business premises in a disadvantaged area to bring them back into commercial use where they have been vacant for a year or more.
There are 24 enterprise zones in England (https://enterprisezones.communities.gov.uk). Businesses setting up in these zones qualify for tax breaks, including 100 per cent business rate reductions up to £275,000 over five years, simplified planning rules and access to super-fast broadband. Alternatively, you can also qualify for 100 per cent capital allowances when you buy plant and machinery within eight of the zones (see p. 382).
Wales has established its own system of enterprise zones, with each focusing on a particular business sector. Information is available from the Enterprise Zones Wales* web site.
In Scotland, there are several enterprise areas, with each having a clear sectoral focus. This is in line with the Scottish Government’s wider economic development strategy of supporting Scotland’s growth companies, growth sectors and growth markets. See the Enterprise Areas in Scotland* web site for more details.
There is a range of support and funding schemes for new businesses not dependent on where you locate (see Chapter 23, ‘Raising the money’ and www.gov.uk/business-finance-support). Some are targeted at specific sectors, including the Rural Development Programme for England*, which provides help for farmers, foresters, landowners and other businesses located in rural areas. You can get details from its web site (www.gov.uk/organisations/rural-development-programme).
In England, Local Enterprise Partnerships (The LEP Network*) are responsible for setting and delivering local growth and regeneration strategies. They take the form of partnerships between local authorities and local business and cover natural economic areas rather than following administrative boundaries. For example, where it makes sense for two adjacent local authorities to combine forces, they will both be in the same LEP. A map of LEPs can be found at www.lepnetwork.net/leps. Funding for growth is not available directly to businesses, but it’s definitely worth finding out if any help is available which would come from the local authority as a result of the activities of the LEPs.
In the other nations of the UK, there are Regional Development Agencies: Invest NI* (Northern Ireland), Scottish Enterprise* (Scotland) and Highlands and Islands Enterprise* (Scotland). In Wales, the Welsh Assembly* is responsible for business development policies.
To find out what help is available regionally, contact the Business Support Helpline*, Business Gateway* (Scotland), Business Wales* (Wales) or Invest NI* (Northern Ireland). If you have a specific area in mind already, you could contact the local authority for that area and the RDA office or LEP to check out what help might be on offer. Be wary of firms specialising in telling you about grants – some of them are cowboys, and you could end up paying a few hundred pounds or more for information you can get free from the Business Support Helpline* or an equivalent organisation.
The final choice of location
It would be unrealistic to assume that domestic constraints are not important in locating a business. The extra benefits gained from moving to another area may simply not outweigh the domestic upheaval and cost of moving house when you want to start your business.
If you decide not to move your home, it makes sense for your offices to be close to your home, as long as other business considerations do not apply. If it would not adversely affect your business to be near your home, it can be an advantage as it cuts down on your wasted travelling time from home to office when you probably need all your time for business issues.
Working from home
Many small businesses will start off in the back bedroom. Some, especially if they are part-time businesses, may stay there permanently and flourish as virtual businesses, especially if they are online based. Working from home has several advantages: it is free, it involves no travelling, the work can be combined with any domestic tasks to be done, there are no fares or expensive lunches to be bought, you can wear what you like, and it protects your home and business from burglars.
However, working from home involves an extraordinary amount of self-discipline. It is all too easy to find some domestic job that needs doing. It can also be frustrating to have your work interrupted by callers or other members of the family. And your work never goes away; you cannot leave it behind when you walk out of the office door. This can lead to extra worry.
Ultimately, you may also find it lonely, and you may find the lack of stimulation from fellow workers and colleagues very dispiriting, though mobile communications and messaging systems can mitigate this. And another disadvantage of using your home as working premises is the poor impression it could create on customers if they need to visit you.
Good organisation is the key to being able to work successfully at home. Your work space needs to be separate from the rest of the house; a room is ideal, but a corner set aside for work is better than nothing.
You should also try to be strict about the time set aside for work. Try to start at a definite time each day. Persuade friends that you are serious about your work and you will be hard at it between certain times. To solve the problems of loneliness and loss of stimulation, try to build a network of others working from home or in your business field.
The obstacles to turning your home into a successful workplace could include the possible need to get planning permission. This may occur if your business alters the residential character of your home. This might be the case if you convert part (a garage, say) into a workshop, your business is noisy or involves hazardous materials, customers will visit your home or you will have employees working there. But provided your business is unobtrusive, you probably will not need permission. If in doubt, contact the planning officer* at your local authority.
Other possible obstacles include:
- the existence of restrictive covenants on the land (ask your solicitor*);
- the existence of a mortgage (check with building society or bank);
- restrictions on insurance (check with insurance broker* or company);
- problems with the environmental health department if your business is food production, for example.
Working from a home that you own may mean that some capital gains tax will be due when you sell it (p. 388). Check with your accountant*. A relatively small gain may be covered by your annual tax-free capital gains tax allowance; otherwise you may need to choose between tax relief on home-related expenses or no capital gains tax when you sell (p. 389). You might be liable for business rates on the part of your home used for business (and the band your home is in for council tax might then be reduced) but not if your business does not alter the essentially residential character of your home (p. 205). Contact the Valuation Office Agency* for guidance. You will also need to consider insurance for an office you run from home. An increasing number of insurers will let you cover business equipment as an extension to your normal house contents insurance. But, more usually, you need to take out separate insurance to get additional cover, for example for business interruption (see Chapter 21, ‘Insurance’).
Since April 2013 there has been a simplified tax regime in place for small unincorporated businesses. This includes a flat-rate expense allowance if you work from home.
What other sort of premises?
After settling on a location, your search can home in on the premises you need. There are two aspects. First, you need a tighter specification of location, for example town, district, neighbourhood or even street. This very tight specification mainly applies to retail business. Most of the considerations you need to take into account are explained in Chapter 8, ‘Off the peg’ (p. 69). The second aspect is the type of premises. The factors that influence your choice include:
- Appearance: if customers and suppliers are likely to come to your offices, appearance can affect your credibility and your image.
- Parking or public transport: if you have staff or visiting customers and suppliers, you’ll want either good transport or parking. The planning officer* (see p. 204) may need to be satisfied that you have adequate parking, unless there are good public transport links.
- Cost: you obviously want to keep your costs as low as you can, consistent, that is, with achieving your business objectives. Keep an eye on business rates.
- Size and layout: your business activity may impose constraints on the amount and exact physical layout needed.
- Physical environment needed for maximum work efficiency: cold, noise, dirt and dark can all mean people do not operate at their best.
The type of business may well dictate your choice of premises between office, factory, workshop or warehouse, for example. But a number of specialised options are open to small businesses.
Managed workshops and small business centres
In many places, there are centres designed especially for small businesses. These provide small offices, workshops or factory space. There may well be an element of joint services thrown in – for example a telephone answering service or secretarial facilities. There could even be an advisory team to help you with initial management problems. Generally, these premises could prove to be much more flexible in terms of length of time you have to commit to take the space, a big advantage when you are starting out.
Sharing accommodation in this way with other small businesses has its attractions; there can be mutual support and business introductions, for example. You may also be able to run a more efficient business because of the shared facilities than from an office on your own. Some workshop groups are organised as ‘business incubators’ designed to foster rapid growth through an entrepreneurial and learning environment, high profile and access to mentors.
In the past few years there has been a rapid expansion of shared workspaces, which provide space to work alongside like-minded entrepreneurs in specific business sectors. These workspaces are designed to create an atmosphere of shared innovation, where people can collaborate, bounce ideas off each other and obtain advice, such as in Tech City in East London. While most of these workspaces are based around technology and creative industries, the concept is expanding to other sectors. Typically, members of these workspaces pay a monthly fee based on the number of desks required.
Science parks
Finding premises in a science park has its attractions for high-tech businesses. Most science parks are attached to universities. The theory is that by grouping innovative businesses together and in close proximity to the research facilities of the university, this will provide a breeding ground for new ideas. Whether this happens or not, your business may be able to project a high-tech image as a result of being located in a park. For information, contact the UK Science Park Association*.
Searching for premises
There are two aspects to searching for premises. First, you have to find out about premises that are vacant. Second, you have to decide whether any of the premises you see meet your needs.
There are several places to look to find vacant premises:
- local newspapers or web sites, such as Zoopla;
- estate agents. You will find that not all estate agents handle commercial property. The estate agent dealing with a particular property may not be local at all but could be based many miles away;
- the local authority*. Many of them keep lists or registers of vacant industrial or commercial property within their boundaries, such as in Cambridge, Glasgow or Leeds. Some have disused public buildings for sale. Indeed, it can be worthwhile having a discussion with the local authority, for example the industrial development officer, as there may be special schemes to help you within certain areas of the authority;
- local enterprise agency* or equivalent (see Chapter 7, ‘Getting ready to start’).
Once you have gathered together information about premises for renting or buying in the area, the next step (before you go to see any of them) is to draw up a checklist of the priority points your premises need:
1. Space How many sq. ft do you need? For offices, allow at least 11 cubic metres per person (the legal minimum).
Office
Storage
Factory
Retail
2. Working environment What is the importance of these factors?
Appearance for customers and suppliers
Light
Noise
Cleanliness
Fire hazards
Neighbours (type of work)
3. Ease of access What do the premises need?
Good access for pedestrians
To be near a bus stop or railway station
Good parking facilities
Delivery facilities
4. Services and facilities Would you like these already installed?
Partitions/fittings
Telephone/broadband
Burglar alarms
Central heating
Lighting/electricity points
Air conditioning/ventilation
Cooking/refrigeration
Computer network
5. What about cost?
Rent per sq. ft
Rates per sq. ft
Maintenance
Running costs
Rent reviews
Premium for getting in
Rent-free period
Decoration
Fittings needed
Telephones, electricity, security, etc.
Length of lease
When you have worked out a shortlist of properties that you want to see, it can be useful to draw a quick sketch-plan of the premises. At your leisure, you can mark where the various parts of the business will be put and get some idea of how comfortably your particular business fits into those premises.
Investigating and negotiating
Before you sign anything, there are several steps to take to investigate the premises further. These steps are to estimate costs, to check the structure of the property (if it is freehold or a repairing lease), to investigate the legal side of things and to look at local authority requirements.
Estimating costs
There are a few things to investigate before estimating costs. First, do not rely on the measurements given by the estate agent or landlord. Measure the premises yourself. There is a chance that the area is less than they said, which could mean lower rent for you if you have been quoted a rent per sq. ft.
Second, it would be a good idea to look at the premises a number of times on different days and at different times of the day. This should allow you to get a better idea of decoration, heating, lighting or noise insulation needed.
Third, make sure you estimate or allow for all the running costs as well as alterations and improvements you would need to make.
It is always worthwhile trying to negotiate a lower rent and, in particular, asking for a rent-free period of 3, 6 or 12 months if there is a lot of vacant property around, as for example in a recession or the current retail malaise.
Checking the structure of the property
Many leases make the tenant responsible for the repairs and maintenance of the premises. Get a survey from a member of the Royal Institution of Chartered Surveyors (RICS)*. You can also use a survey to negotiate that the landlord pays for certain improvements before you take the premises.
Investigating the legal side of things
Your solicitor* should be asked to undertake a perusal of the lease. The sort of points to look out for are:
- Can the premises be used for the type of business you have in mind?
- How long is the lease? Commonly, it is between 3 and 20 years.
- Is there a break possible in the lease?
- Will you have the right to get a new lease when this one runs out?
- Are the premises listed? This can restrict the way you adapt and extend them to suit your business needs.
- Are there rent reviews, and when are they?
- Can you sublet part or all of the premises?
- Who is responsible for the repairs and the insurance?
- Is the lease actually owned by the person trying to sell it?
- Are the premises likely to be affected by any road or town improvements or alterations?
- Who is paying for the landlord’s legal costs? It is general practice for you to pay them, but it is always subject to negotiation. At any rate, agree beforehand that you will only pay a reasonable amount.
- Is it possible to rent the premises on a weekly agreement, rather than sign a long lease? This gives you flexibility, but you lose security. An informal arrangement like this may be possible at times when there is a glut of vacant property.
- Does the landlord want you to give a personal guarantee? Your solicitor should spell out to you the implications of doing so and help you to negotiate to try to avoid this.
Looking at local authority requirements
A simple step you can make for yourself is to call the planning and building control officer to find out what is the current approved use for the premises. If your intended use is the same, you may need to do nothing more. If a change of use is required, your solicitor* should be able to help. The planning officer can also advise you if your premises have listed building status.
Depending on the nature of your business, you may need to consult:
- planning and building control officers;
- environmental health officers;
- fire officers;
- the Health and Safety Executive (HSE)*.
Information technology
Laptops, tablets and smartphones put unprecedented power and flexibility in the hands of the small business person, at affordable costs. Powerful software packages or services in the ‘Cloud’ are available for every conceivable requirement, whether it be generic or niche. It is not appropriate or practical for us to recommend particular offerings here. However, before you start it is worth thinking carefully about what you will need in the first few years of your plan. Then do some research and take some advice before jumping in. Your biggest investment in information technology these days, for most businesses, will actually be the investment of your time. So you do not want to be chopping and changing your systems unnecessarily.
Business rates
If you occupy business premises, you must normally pay business rates (non-domestic rates). These apply wherever in the UK your business is situated, although the way the rates are set and the relief available vary from one country of the UK to another. However, the basic principle is the same across all the countries: your bill is worked out by multiplying the rateable value of your property – an estimate of what it could generate in rent each year – by an appropriate multiplier (sometimes called ‘poundage’). Rates are levied on an annual basis with the year running from 1 April to the following 31 March. There is a small business relief available so that you pay no rates if the rateable value is below £15,000.
In each country, business rates are collected by your local authority or local council. In general, they are pooled in a central pot for the country as a whole and then redistributed to local areas.
The rateable value of properties is updated every few years – usually five, but less frequently in Northern Ireland. This is to keep the values in line with commercial rents. The latest revaluation in England, Scotland and Wales came into effect from April 2017. Northern Ireland is working on a revaluation to be used from April 2020. Potentially, a revaluation could mean a big jump in your rates bill if commercial rents have been increasing. However, in England transitional relief spreads the increase over five years. In Scotland and Wales, the multiplier was adjusted to offset the change in rateable values and so limit the size of the increase.
If the property is partly for business and partly for private use – for example, a shop with a flat above – business rates are payable on the business part of the property and council tax (domestic rates in Northern Ireland) on the rest. The same treatment may apply when you use part of your home for business purposes, though each case is considered individually. In 2004, an English tribunal case (Tully v. Jorgensen) set out some useful principles. It ruled that, where home-based work involves using furniture and equipment normally found in a home and residential use is not compromised, business rates might not be due. But business rates are likely to be chargeable if you make structural alterations to your home, hire staff, use specialist equipment or have customers visit your home.
There are also a number of reliefs available that could reduce or eliminate your bill; ask your local council or authority.
Summary
- Could your business be a ‘virtual business’? Improved communications means that a business could be started by several of you, each working from home.
- Look at location with an open mind. Would your business get off to a better start moving to a different part of the country? Locations with assisted area and/or enterprise zone status can offer considerable benefits.
- As well as conventional premises, small businesses can also look at shared workshops and offices, and setting up in a science park.
- Before you inspect any premises, draw up a list of what you think are your business needs.
Other chapter to read
2 ‘Less than 100 per cent’ (p. 13).