Costs to expect during growth
When you’re expanding your team and footprint, there’s probably more to budget for than you think.
There are so many costs that come with scaling a company. From hiring your team, to expanding your office footprint, to making sure there are enough snacks and supplies to keep everyone going — it all costs something.
But your company does have quite a bit of control over how much you spend, based on several factors. You can spend or save on both CapEx and OpEx — it just depends on what kind of experience you want to give your employees.
We’ve put together this list to help you both know what to expect and to know what to weigh out when you’re calculating your budget for opening a new office.
Where to scale
How much will it cost? You could spend anywhere from $18/sqft base rent in a city with low real estate costs (like Columbus or Boise), to $75+/sqft for an office in an expensive city like San Francisco and NYC. To estimate burn in a specific city, check out this city burn rate calculator
Where you scale can have the largest impact on your spend. The cost of scaling in a traditional tech hub is on average 232% more for real estate and 32% more for talent than in growing cities across the US.
For example, operating a 25-person engineering office in Austin is 29% less expensive than in San Francisco. The average salary of an engineer in Austin is $107,455, versus $145,733 in San Francisco, and real estate is also available at a much lower rate. Over the course of 6 months, your company would save over $500k. That’s a lot of extra cash that could be invested back into the business.
Depending on what type of talent you need, it may make sense to build an office in another city. To find out if you can get the talent you need in a more cost-friendly city, contact us.
What type and size of space to look for
How much will it cost? The price tag of your new office will depend on square footage, location, and functionality
The more space you need, the more you will likely spend. Depending on what role(s) will be in this office, you’ll want to determine if you’ll need 90 sqft per person or 150 sqft per person. In addition, you’ll want to account for how much will your headcount will likely grow over the life of the lease.
You also want to think about what the office needs to provide, functionally. A customer support team likely won’t need as many conference rooms or phone booths as an engineering team might. For a sales office, location is key. You may want to be near a number of cafes and restaurants so your salespeople can take their clients out to lunch or coffee when they visit. If your sales team is out in the field a lot, you’ll want to look for a space with parking. Different teams require different amenities to get the job done. Make a list of must-haves and nice-to-haves for the space to help you budget.
Level of finish
How much will it cost? Depending on how much you need to design and build, you could be looking at anywhere from $20/sqft for the bare minimum in a low-cost city, to $180+/sqft to fully gut and build out an office in an expensive city
The more upscale the experience you want for your team, the higher the “level of finish” you’ll need to plan for, and the costlier it will be upfront. But often these costs provide extra return when it comes to attracting and retaining the talent that your company needs to be successful. (There is a fine line, however.)
Take a look at the existing space. Will you need to do serious improvements, or just a few minor tweaks to get it up to your standards?
Your architect will do their best to design the right experience (and functionality) within your budget, but they may include some extra features and materials that you may not want to pay for. If you take the time to thoughtfully trim a few of the nice-to-haves, and value engineer the project, you’ll be much happier with the final budget.
Tip: If you’re wrapping up the design phase and the budget is still looking too high for your comfort level, consider phasing in some of the features that you know you won’t need right away and adding them later when you have more funds available. It will be costlier in the long-run, but if cash is king, you’ll be able to defer some of the spend.
Operational services
How much will it cost? Budget anywhere from a few hundred dollars to upwards of $10,000 per month for the suped-up office treatment, for a team of 25
From a functional, cultural and competitive perspective, what services do you want to have at this new location? Many companies provide lunch, snacks, and swag for their employees. You can splurge to give employees an extra special experience, or find other ways to make them feel at home that don’t involve a hike in expenses.
Unforeseen costs
How much will it cost? Anywhere from no extra costs (fingers crossed) to $250,000+ if you’re opening a large, high-end space
Every project has unforeseen costs that arise. They don’t always push a project over budget, but they can be a stressful addition to everything that has to happen over the course of opening a new office.
CapEx is most often where unexpected expenses come up. General contractors typically build in a contingency fund to cover unforeseen construction costs, but there’s always a chance you could spend more than what you expected. Your new building could require union labor, extra permitting, or limited working hours, which calls for overtime rates rather than standard. Unknown building conditions like the freight elevator going out of service, or that unfortunately-placed conduit above the ceiling that you couldn’t have possibly known was there and needs to be moved, could also add costs. Delays from strikes or lack of labor, or your materials getting stuck on a boat coming from overseas could also add costs to your project.
In addition to construction-related expenses, OpEx like back and forth travel or taxes in your new state add to the budget if you haven’t planned properly for them.
Time
How much will it take? 4 months — 1 year +
The cost of growing a company that not as many people talk about is time. If you’re putting your new hires in an office, it could take anywhere from 4 months to over a year to get them in the right space. Finding and building out an office space is a linear process that requires many hurdles to be jumped before you can actually move in. Starting your expansion planning process earlier rather than later will make for a much smoother new office launch and much better decisions for the long-term goals of the company.
Knowing what costs to expect during your company’s growth will help you budget more accurately. Unexpected costs will inevitably come up, but the more you know, the more you can be prepared. Expansion can look overbearing and costly in the midst of things, but if done right, it can be very rewarding and a huge positive step for the company.
If you’re part of a fast-growing startup that is scaling its people and places operations, BeyondHQ can help you scale the right way. We manage the process of expansion so you can focus on what matters to you. Visit our website to learn more, or say hello on Twitter @GoBeyondHQ.
