Identifying and controlling costs is an integral part of successfully sourcing and running your workplace.

It is useful to prepare two budgets one which looks at the costs inherent in sourcing your property and making it fit for your purpose, and another which details the ongoing costs of occupying it (both in terms of capital and revenue).

In addition to the costs that you will be billed for, you should also be aware of the cost of the time that you spend on the project. Accordingly, be careful not to duplicate the work that your consultants have been engaged to do.

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The cost of sourcing your workplace

The advice you should take when sourcing a workplace " details the professional team which may need to be involved in finding and fitting-out your new workplace. Their fee estimates will represent a substantial component of the costs of sourcing your workplace.

Your property agent Directory will most likely make a fee proposal that is based on either a percentage of the annual rent you will pay or on a charge per sq ft for the space you take. This is the standard approach although you might like to consider incentivising your agent with an arrangement which rewards the agent proportionately for negotiating a reduction in the quoted rent or obtaining a larger "incentive package" from the landlord (if this is commonly available at the time of negotiation)." from the landlord (if this is commonly available at the time of negotiation).

Your solicitor will advise on the negotiation and drafting of the property lease or purchase contract and any other contingent matters (planning, contracts with your professional team etc). It is hard to quantify fees in this area as they are generally charged on a time basis and that will be influenced by the complexity of the transaction.

The remainder of the professional costs will depend on the services you require but you should always ask for fee estimates at the outset so you can identify and control your budget as you move through the sourcing process.

Fitting-out costs are subject to the nature of the fit-out and the extent of the work that has to be done. Given the open-ended nature of this cost, it is very important to get detailed estimates at an early stage.

Stamp Duty is a tax which can be payable on property transactions and is calculated on the chargeable consideration arising out of a transaction. You should check this with your lawyer or accountant to see the thresholds and reliefs available.

The ongoing cost of your workplace

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The three main elements of property occupation which will contribute to your ongoing workplace costs are:

  • Rent.
  • Business rates.
  • What type of space do you need? (Configuration & Identity).
  • Service charge.

Rent will typically account for 60% of the total occupational cost while business rates (c.30%) and service charge (c.10%) will make up the remainder. Accordingly, when you see a property with a quoting rent of, say, £40 per sq ft, you can expect to be paying around £66 per sq ft when business rates and service charge are accounted for. In addition, if your landlord has elected to charge VAT on the rent then this can also be a substantial additional cost as it is currently levied at 17.5% and will rise to 20% in 2011. If VAT is charged then you should take advice on what proportion your business can recover.

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Other costs to factor into the ongoing budget are:

  • Rental deposit.
  • Insurance.
  • IT/Telecoms.
  • Utilities/Energy.
  • Cleaning.
  • Maintenance.
  • Security.
  • Storage.
  • Business equipment & office supplies.
  • Provision for possible reinstatement costs at expiry of lease.

With this perspective you can begin to search for the property that meets the needs of your business. Guidance on how to do this can be found in section, Searching and Shortlisting: what do you need, where should you look?

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Controlling costs

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These are a few suggestions about how to minimise costs.

  • Involve your Financial Director at the outset and ask them to continually evaluate how costs might be controlled or minimised throughout the process.
  • Try to avoid double overheads: if you are relocating, make sure that you have stopped paying costs on your previous workplace before you move into your new one.
  • Remember that lowest cost isnt always best value: your workplace is business-critical so cutting the budget for this process may not be the main priority.
  • Try to fix costs wherever possible: explore whether your professional team will work on fixed fees. If not, get firm projections from them regarding fees and possible overages.
  • Telecoms: shop around for tier 1 telecoms operators.
  • Utilities: ask your landlord if they have buying power which can provide you with economies of scale.
  • Consider developing an Energy Management Plan which will implement best practice to control the variable costs of energy consumption.
  • Storage: do you need to have storage at your workplace or would it be cheaper to have storage facilities off-site?
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