Once you get a good grip on the market and make your connections, you’ll need to start thinking about financing your Coworking space. Like any other business, there’ll be an initial CapEx spend and a recurring operating spend. Based on your finances, decide how you will fund your project and prepare a budget. If financing your coworking space on your own isn’t an option, there are loans and other forms of investment that may do the trick.
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The majority of your capital expenditure will be on your lease and real estate costs. Consider legal fees and the lost salary expense if you’re unable to work while planning and opening your space. Construction, flooring, fit out and furniture costs, services and infrastructure installations, and marketing tactics will also contribute to your initial capital expenditure.
With simple calculations, you can estimate what your overhead revenue will be and how to price your membership plans and services to not only break-even but to generate revenue. Related to the physical space, factor in recurring expenses such as utilities, IT and VOIP, water, coffee and general supplies, staff salaries and your own salary, if you plan to take one. Keep an extra stash of cash for unforeseeable issues, such as a leaky air conditioner, plumbing troubles or seasonal staff.
It’s possible to start a Coworking space on a bootstrap or limited budget. You don’t necessarily need to start out with the Rolls Royce of office space, furniture, services or a full staff. You can start with a smaller workspace of between 2,000 and 5,000 square feet to test the waters. Once you can prove a functional business model, and even better, a profitable business, you can consider expanding your Coworking space within the same building or opening a second location. Hire recent college graduates with experience in hospitality for starters and eventually you can hire multiple specialized roles.
But first, fill your workspace with members who will help you break even as quickly as possible so you can reinvest it in your business or seek external funding and investment. Until that point, however, be prepared to have a significant savings account or to secure a loan to fund your Coworking space during the first six to eight months, when you’ll most likely be losing money before you break even.
To give you a vague idea of rent costs alone, according to The Real Deal, the average asking rent in NYC, which increased since last year, is approximately $73.07 per square foot. A smaller space could cost you around $13,000 per month in rent. Even though high demand is driving up real estate costs, bootstrapping is still possible with a hefty savings account, tightening your belt, and being as efficient as possible with your Coworking operation.
Looking to Bootstrap your first space? Ask yourself these questions:
- Do you have savings?
- Do you have good credit?
- Can you be approved for a loan?
- How long can you finance your Coworking space with savings before breaking even?
- Do you have other life goals or projects that may derail your business? or vice versa?
If bootstrapping isn’t for you for the long-haul, you may want to consider external funding and investments.
Investment and Funding
If you want to acquire funding for your Coworking business, you must start by seeking a partner, a friend or business acquaintance who have money to invest in a new project, or a professional asset manager, venture capitalist or real estate investor. If you can work with a business colleague or friend, clearly define intentions and draw up a formal, legally binding contract to avoid conflicts.
When it comes to asset managers and investors the process is much more formal and tedious. If and when you get the attention of an investor and confirm a spot on their calendar, your goal is to make your Coworking business shine, exude and prove confidence in the success of your business and its future. Have a good story and a clear vision for your concept, provide data around your member base, revenue and financial projects. Chances are you won’t get their attention until you have already launched your space and it’s in full swing. If you get good press coverage, even better.
While securing money to run your Coworking space is your primary objective, you can also benefit from the knowledge and experience of investors. They can lend valuable advice that helps drive your workspace business forward even faster.
For funding, one of the trends we’ve seen in recent months is local government departments and offices of economic development or chambers of commerce playing a role in financing Coworking ventures. It’s worth your time to research appropriate contacts and reach out to broker a deal. If they have a budget for economic development, a partnership with a Coworking concept, which fosters small businesses and stimulates the economy, may be just the thing to revive a local community. An added bonus is that these organizations may already have access to your potential members.
Before seeking external funding ask yourself these questions:
- Can you make it on your own?
- Do you mind working for someone else?
- Are you prepared to answer to a boss and justify every penny spent?
- Would you be willing to risk the chance of sharing your Coworking brand with investors?
- Are you ready for growth and the challenges that come along with it?
Once you decide how you’ll be financing the launch of your Coworking space and secure your funds, you’ll need to understand how to manage your monies after you launch the Coworking space. Here are some tips on how shared workspace financial management. Without getting ahead of ourselves, however, next up in the series is a look at securing your commercial real estate. Stay tuned!
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