Prior to starting a business, many entrepreneurs mull over whether they are going to sign a commercial real estate lease or use their home as their first office.
It’s really on a case by case basis. There are too many variables at play such as type of business, location and current cash infusion to make a sweeping generalization and say that every start-up should lease an office as opposed to recommending that every start-up begin from home.
Rather than making a case for one or the other; it’s probably best to lay out some pros and cons of having a home based office and let the entrepreneur make an educated guess.
Pros of a Home Based Business
1. Tremendous Amount of Money Saved – Very rarely does commercial office space provide a direct or even indirect return on investment for a start-up company. I always tell new entrepreneurs that they must enjoy the good times and save for the bad times and postponing that commercial office rent as long as they can will help fill that piggy bank in case things get slow.
2. Tax Deduction – Not only does the entrepreneur save by not signing that commercial real estate lease, but they also gain from favorable tax laws for home based businesses.
This article should shed some light on the additional tax savings that is available to the home based business.
On a side note, the one thing that I ask from every start-up business is to never be liberal in home office deductions. If you’re audited, the fines are astronomically high.
3. No Commute = More Time For Work – Starting a business takes so much time and effort that getting out for the first few years is probably not going to be much of a luxury.
If you’re working 17 hour days, there is no reason to pay for an office. If you want a change of scenery, I recommend that the entrepreneur take a daily walk – it’s much cheaper than leasing an office just to get out of the house.
Cons of a Home Based Business
1. Recruiting is Very Hard – I could go on and on about the horrors I went through trying to recruit employees out of an apartment. I was eventually successful, but I am a professional recruiter.
My advice is that if there is one big hindrance to company growth on a personnel basis, it’s a home based office.
2. Management is Very Hard – Managing remote employees while still working from home presents challenges that only add on to the natural challenge that is employee management.
Employees think differently from entrepreneurs and tend to take a job more seriously when they’re in an office environment. At least, this is in my experience.
In the End
For most entrepreneurs, I think that working from home to save money for investments in things such as future employees, a higher marketing budget or whatever else is probably worth a try.
Unless your customers need to see you all the time, you can probably get away with it until you have the money to spend on a commercial real estate lease which usually provides little to no ROI.