Is Your Rent a Marketing or Overhead Expense?

Many small business owners are trapped by their landlords. During the start up or a growth phase of any company, the owner tends to lease more space then they need. They get trapped in fantasy of growth mode with large offices, big buildouts and expensive rents. The landlord knows just what to feed: your ego!

When a business is flat or shrinks, the large rent expense looms large on the income statement. With many business owners personally guaranteeing their lease, they lose the flexibilty to move to a smaller space when things go south or sideways. This has been especially true during the most recent recession where many companies are paying rental rates far above market or have too much space for the current size of their company.

Before you rent any space, think about whether your rent is a marketing or overhead expense? It is only a marketing expense if you are a retail store (Location, location, location) or you need to have a Madison Avenue/ Michigan Avenue address so your company will be credible. In the vast majority of non-retail business, you need less office space and less of a location than you think. Small business are notorious for spending too much money on rent!

In fact, in more and more cases, small business can use the tools of technology to not have an office at all and work together virtually. Great teamwork can be built using various online collaboration and video conferencing tools without incurring the expense of an office.

What if you are already trapped with a high rent? Ask your landlord for a reduction. Show them your financial statements that you really can’t pay. You  should not be in business just to pay rent! You will be surprised how  accommodating your landlord will be since they will not be able to rent the space to anyone else at the same price. Another strategy is to extend the lease with less space at a lower price.

In our internet connected world, rent is never a good expense unless it is a marketing one!