What are the Main Office Costs Aside from Rent?
Rent is one of the major costs for office-based businesses. However, there are a handful of other vital expenses associated with renting office space that shouldn't be overlooked if you're seeking to accurately control your business' budget and profitability. It's usually recommended that small businesses keep an expenses-to-profit ratio of approximately 30%. Here's an overview of the main office costs you should be aware of to ensure you stay within those limits.
Expenses to be Aware of when Renting Office Space
In addition to wages, you'll need to account for pension contributions, national insurance, and any benefits or bonuses you offer - such as sick leave, paid holidays, maternity leave, etc. For most small businesses, payroll costs represent 20 to 30% of all operating expenses.
Moreover, if you have an external payroll manager or accountant to handle payroll processing costs, their fees will have to be added to your expenses too. The same applies if you hire staff using agencies or recruiters. It's also important to not forget the costs associated with hiring cleaning or janitorial staff.
Business rates are payable by the occupier of commercial premises. This is a recurring expense, with bills issued during the first quarter of the year. These rates are calculated by your city council and reviewed every year. For further information regarding the exact rates that apply to your businesses, it's important to contact your property manager or council directly. Alternatively, you can obtain an estimate of your business rates bill here.
Remember, if you disagree with a property valuation - or you think there's an error in the bill - you'll need to get a reassessment through a chartered surveyor, further adding to your expenses.
Service charges are paid to the office building owner and cover the costs of maintaining common spaces, such as entrance areas, lifts, corridors, etc. This charge also covers repairs to the exterior of the office building (e.g. roofs, walls, pathways, etc.). In some cases, service charges include property management fees and utility bills for common areas.
The actual cost is variable, but it should be specified in the lease document. The contract should also outline how these charges are paid (yearly, monthly, or quarterly). Keep in mind that older buildings may need more maintenance, so charges could be higher even if the lease itself is cheaper.
Here you'll need to account for:
- Basic utilities: water, heating, cooling, lighting, and gas. When it comes to these basic utilities, such as electricity, bear in mind that business rates are different from residential rates and contract terms are longer. It's important to shop around or use a price comparison tool to find out the best deal.
- Communications: landline, mobile phones for exclusive business use, and the internet. The costs vary depending on your supplier, office size, and the number of employees. Modern buildings or those with a BREEAM or LEED certification may come with higher rental fees, but energy bills are lower.
Equipment & Supplies
Office equipment is not a recurring expense, but it still needs to be accounted for. If you're setting up an office for the first time, you'll need to pay for furniture, filing cabinets and storage supplies, photocopiers, printers, scanners, office supplies, branded or promotional items, and computers unless you run a bring-your-own business. Some software licenses must be renewed every year, so add that to your expenses too.
When you become an employer, UK law requires that you have employer's liability cover. Other types of insurance are not mandatory but having them is considered good business practice. Depending on the type of business your run, insurance covering professional indemnity, interruption of business, contents, public liability, company vehicles, and stock may be needed.
Health & Safety
All UK businesses are required to have basic health and safety equipment, such as first aid kits and fire extinguishers. In addition to the cost to purchase, this equipment needs to be maintained or inspected, adding additional costs to your running expenses.
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