When considering the ins and outs of corporate real estate, it’s vital to determine your occupancy costs when evaluating your business’s financial standing. If you’re thinking of relocating or opening a new location, you don’t want to exceed your projected revenue or leave your company with cash flow problems, which is why there are a few factors attributed to occupancy costs that you should consider when making that all-important decision.
Consider your expenditure
The most common culprits soaking up your company’s expenditure are; rent or mortgage payments, taxes, insurance and other expenses which may apply in some areas, along with equipment installation, light fittings and supplies. Depending on the location, what expenses are more substantial may vary.
Variable Costs
Your costs can fluctuate from month to month based on activity, with things such as utilities and other periodic expenses. Seasonal changes in the weather may also cause some fluctuation in utility and other expenses (e.g. snow removal).
Occupancy Cost Ratio
Once you’ve added up the average costs your company expects to spend on a given location, you can then find out your occupancy cost radio. An occupancy cost ratio can prove a useful resource for helping companies calculate their business expenses when it comes to occupancy costs.
To find out yours, take your total estimated costs as mentioned above, and divide that number by sales. The higher your ratio, the more indicative this can be of possible cash flow problems for the company in the future, since money brought in by sales is almost as high as the expense to keep up with your location expenditure. A lower ratio means your company has more money flowing in for other expenses therefore more financially viable, and more likely to grow over time.
A good way to keep an eye on your occupancy costs is with regular internal financial reports.
Here are some great articles on keeping Occupancy Costs low:
