Opening the doors to your own coworking space is a dream come true – especially if you’ve spent what seems like a lifetime of searching for just the right place to do your own work in. Whether you have this kind of first-hand experience or not, planning a coworking business is exhilarating – after all, you’re becoming the host of a hub of creativity and innovation.
But it’s a business nonetheless, and if you mean to set your business up for success, you’ll need to have all your ducks in a row. You’ll need to create a financial model preferably before you even pick the space you’ll be renting. That way, you’ll know what page you’re on regarding funds and more insight into the revenue the business can bring in.
To help you create the financial model for your coworking space, we’ve outlined the key points you need to factor in.
Determine expenses and project costs
Start by outlining the various costs that will make up your capital expenditure. A dominant portion of this will go to real estate costs, which is why it’s best to outline approximate setup costs before finding a space to rent. You can research your renting options first and factor in the average price, determine your budget for rent, and then plan accordingly.
When projecting the initial costs, you’ll include the major expenses associated with setup, such as:
— Security deposit or down payment needed for renting
— All legal fees (pertaining to the process of registering as a business)
— Furnishing expenses: construction, flooring, infrastructure installations, materials (e.g. paint), interior design, furniture and equipment.
— Marketing costs
If you’re putting your means of earning on hold while planning and opening your coworking space, don’t forget to consider the lost salary expense.
Once you’ve got all the initial costs down, move on to the regular (recurring) costs associated with operating a coworking hub. You’ll need to factor in:
— Monthly rent
— General supplies (cleaning/bathroom/kitchen/printer supplies)
— Hospitality costs associated with the benefits your coworking space offers: coffee, water, energy-boosting snacks, etc.
— Staff salaries, etc.
Decide whether you plan on taking a salary yourself and how that can fit into the budget. Lastly, don’t forget to note the cost of seats that remain empty.
Project revenue streams
Typically, the two main revenue streams of coworking spaces are membership plans and space leasing.
With all your expenses calculated, you have the necessary direction to form your prices.
When it comes to membership plans, before coming up with a flat rate and concept of services, you first need to determine how many members your space can accommodate. Although you’re surely enthusiastic about your endeavor, be realistic when considering how many people are going to sign up in the initial stages.
Do some research, check out the nearest coworking spaces, and even conduct surveys on social media to get an approximate idea of how many people you can realistically expect to sign up. This research will also be crucial to your marketing efforts, which will help you gain momentum as a new business.
How you structure your membership plans really depends on your circumstances, so take your time developing them and adjusting them to any creative visions of the business you might have.
Firstly, decide how many membership plans your hub will feature and which benefits each one offers. Price them not only to break-even but to actually generate revenue.
The same goes for space leasing, where you can offer dedicated offices to individuals and groups. You can get creative with your plans here, so go ahead and brainstorm. If you plan to lease the space for events or host industry events yourself, make sure that you’re ready for the added organizational complexity before you factor in the additional expenses and sources of income.
Factor in surprises and rainy days
Something will always come up – plumbing issues, seasonal staff, big networking event, equipment repairs, and so on. Just like any normal business, you need to be prepared for these and set aside a solid amount of cash for any unforeseeable issues or surprise expenses.
While developing your financial model, it’s extremely important to keep in mind that you’ve had to assume a number of things in order to be able to calculate your expenses. You worked with fixed prices, an approximate number of employees, and an assumed number of members, for example. With all the risks considered, you can still start a coworking space on a limited budget. It’s better to start small and plan to expand in the future than to go all out before you’ve proven a functional business model.
You’ll most likely be losing money for the first 6-8 months before you break even. So, aside from projecting costs and revenue streams realistically, the success of your business depends on how well you’ll be able to carry out those few months. Prepare your funds to get you through, start modestly, and surround yourself with the right team.
You’ll have some important decisions to make while creating your financial model, as some basic assumptions can project bigger consequences further down the road. So whether you have entrepreneurial experience or you’re completely new to this, don’t hesitate to seek help and advice. There could be creative opportunities at your fingertips, and you want to be open to new concepts. At the end of the day, it’s you and a trusted team at the whiteboard – so give it your best shot.