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Thread: Expanding/Employing

  1. #1
    Gold Member Mark Atkinson's Avatar
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    Lightbulb Expanding/Employing

    I would like to get a discussion going here regarding the expansion of a small business.

    For some background info, most of you know that I run Red Giant, my own small design business, with 2 partners. Come the end of this year we are going to be looking seriously at expanding a bit. The business is currently a work-from-home scenario but if we are still doing as well/better than we are doing now at the end of the year, it would put pressure on us to expand into an office and/or employ somebody.

    I would like some input on the following topics to do with this subject:

    Right Income Point? - Is there some sort of monthly turnover/profit figure I could be aiming for at year end which could indicate that we could afford to expand? Bear in mind we have no real expenses yet. The business costs us our time and on the odd occasion we have to purchase software/components/hosting.

    Now expanding into an office would bring all sorts of other expenses such as rental. What are other expenses I can expect to pay should I expand into an office?

    Capital reserve? - My guess is that it would be advisable to have a reasonable nest egg saved up should we decide to make the move, in case we run into a tough patch or two. What sort of figure should I be aiming for in this situation.

    Home-based vs Separate offices - What are your opinions on these two options?
    We are considering renting a house with 3/4 of us (we are young students and can do this) and running an office from a suitable part of the property. What are the advantages and disadvantages of each? Price differences? License requirements? Professional appeal?

    What about the location of a separate office? In a centre of some sort or on separate premises?

    Considerations when employing somebody? - What are the important things I need to note regarding employing a person?

    Who to employ first? - This is a biggie. Would I employ somebody to do admin related work (or a jack of all trades) or would I employ somebody like a professional web developer to enhance the quality of our work? The latter would probably be a lot heavier on the pocket, mind you.

    Tax implications? - What are the tax implications of expanding into an office and employing people? For example PAYE - having never employed somebody full time we haven't had to deal with this yet. What do I need to consider in this regard?


    Thanks guys. This thread is really just to bounce ideas and opinions off everybody. I've got my own thoughts on all the above, but would like to get a good discussion on any/all of the topics above.

    (I was considering creating separate threads, but this one didn't end up too long.)
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  2. #2
    Platinum Member Neville Bailey's Avatar
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    Hi Mark,

    I won't be commenting in detail on all your questions, but I would like to pose a few core questions and comments, of my own, to you. This topic is one that is very close to my heart, as I've "been there, done that" before, and the path I am currently following is one that I am guarding jealously.

    Why do you think you need to move into offices at all? As you pointed out, your business only requires your creative minds and some software to operate, so why can't you continue as you are? - in fact, you could probably operate from anywhere in the world, without the shackles of an office. Do you need an office because you want to project a certain image to your clients? To me, your current image is very appealing, as it conveys a sense of unfettered creativity, flexibility, passion and excitement, which I fear might be stifled if you become "corporate".

    Why employ anyone at all? This step is a quantum move into territory which brings a host of baggage with it. Before you know it, a whole chunk of your attention and energy will be redirected towards motivating and administering that person (who will never have the same passion that the two of you have), plus all the burden and humdrum of complying with legislative requirements.
    I have been following your journey with great interest and empathy, as it resonates very closely with mine. However, when I read your post, my gut reaction was "oh no, please consider this very carefully".

    Expansion and growth is critical for survival, but it need not be encumbered by unnecessary weights.

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    Hi Mark

    Some of your questions are really difficult to answer as a lot depends on your current costs, the predictability of your future income stream and costs sepcific to your industry. I think you are hoping for specific text book answers on when to move when the reality is it most probably relies mainly on your gut feel. The answer of when to move is not a specific point, but rather a function of risk versus reserves. The more reserves you have the safer the move.

    However I quite liked Neville's post above. He has asked some really important questions. Why spend all that money unless its really necessary? Remember not only to consider setup costs and rent down payments, but also the liability incurred by the full time of the lease. You are essentially promising to pay the new landlord several years of rent. Add that sum up and consider trying to pay it if business turns bad.

    The other one is the employment angle. Eish, you are entering a mine field there. Plenty of admin and very long term contracts. My biased advice is to avoid this unless really necessary. However if you go this route your first two items on the agenda are to register as an employer with SARS and with the dept of Labour for COID.

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  6. #4
    Site Caretaker Dave A's Avatar
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    Right income point:
    I'd say when your profits are already enough to cover the increase in overhead, plus some space for fluctuations.

    Capital reserves:
    The best answer to that I've ever heard is the equivalent of 3 months turnover as liquid reserves. However, one should also be mindful of those financial ratios that you've been learning about.

    Home based vs seperate office:
    Even if you are home based, I recommend a seperate space is allocated as the work space as opposed to the residential space. The seperation of home and work is important at almost every level - mentally, physically, socially.

    Considerations when employing somebody:
    Huge topic on its own. I'll pass for now.

    Who to employ first:
    I'd look to hire for the drudge, repetitive, time-consuming tasks first. They take away from your creativity, and they're easily delegated. The more high-end you hire, generally the more complicated things get on the employee front.
    The trouble with opportunity is it normally comes dressed up as work.

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    Bronze Member rfnel's Avatar
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    Hi Mark

    I'm going to take my best shot at answering your questions. I'm no expert, but I've given some thought to the exact same thing when I went into business.

    Right Income Point? - Is there some sort of monthly turnover/profit figure I could be aiming for at year end which could indicate that we could afford to expand? Bear in mind we have no real expenses yet. The business costs us our time and on the odd occasion we have to purchase software/components/hosting.
    Will it be worth it to increase your expenses at all? I'd rather work from home and make Rxxx profit per month than work from an office and only make Rxxx - R8000.00 (just a guesstimate).

    Capital reserve? - My guess is that it would be advisable to have a reasonable nest egg saved up should we decide to make the move, in case we run into a tough patch or two. What sort of figure should I be aiming for in this situation.
    My financial advisor said the same thing as Dave - make sure you have enough to survive for three months.

    Home-based vs Separate offices - What are your opinions on these two options?
    We are considering renting a house with 3/4 of us (we are young students and can do this) and running an office from a suitable part of the property. What are the advantages and disadvantages of each? Price differences? License requirements? Professional appeal?
    This approach will likely save you a bit of money. From what I could gather, office space is insanely expensive. I agree with Dave - keep your work space and your living space separate. My dad has his office adjacent to his house, but the house and the office each have separate entrances - they are not directly connected. He also has a gate leads directly to his office from the street, so clients never have to go through the house. That setup work well for him.

    What about the location of a separate office? In a centre of some sort or on separate premises?
    What would the purpose of the office be? Working from home should be fine, apart from when you want to see clients. Personally, I like to grab my laptop and meet clients in a coffee shop rather than an office.

    Considerations when employing somebody? - What are the important things I need to note regarding employing a person?
    For one, come rain or shine, work or no work, you'll have to pay a salary every month.

    Who to employ first? - This is a biggie. Would I employ somebody to do admin related work (or a jack of all trades) or would I employ somebody like a professional web developer to enhance the quality of our work? The latter would probably be a lot heavier on the pocket, mind you.
    Between the three of you, your work is awesome. Based on what I've seen, I think that a professional web developer would be overkill. If you really need extra skills for a particular project, why not outsource? It would be a lot cheaper than someone who is permanently on the payroll. In order to determine who you should employ, I'd try and figure out which areas of the business you could save in. E.g. if you can work for R300.00 p/h, and you spend 2 hours a day doing admin, it would be cost-effective to get an assistant to do the admin at something like R80 p/h. That would give you the freedom to focus on what you do best, and ultimately, generate more revenue.
    Last edited by rfnel; 13-Jul-11 at 04:55 PM.
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    Mark Atkinson (13-Jul-11)

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    Gold Member Mark Atkinson's Avatar
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    Thanks guys.

    Let me just clarify my thoughts.

    Next year I do my honours course for my Bachelors in Accounting Science. This is an extremely difficult and extremely time consuming course. This issue is further complicated by the fact that I'm probably going to have to move from UNISA to UKZN to do the honours year (UNISA has made a stupid unilateral decision to make honours a 2 year course from next year - a story for another time). My thoughts are that I'm going to have very little time to do all the admin work which I usually do. This is the main reason for me considering employing somebody to handle admin work.

    I basically need somebody who can perform my functions for a good couple years - a situation where I can just monitor, supervise and do the important things in the business - at least until I've finished my qualification.

    At this point, both my partner and I are reaching an age (20-21) where we feel the need to make a move towards independence. The thought at the moment is to rent a house with a space we can use as a separate office. Something like Riaan mentioned would be ideal. As it stands we can't really invite clients to our homes and it is becoming a regular occurrence that a client actually asks to visit our "offices".

    @Neville and Busfact - Believe me when I say we have no intention of becoming "corporate". We will always run our business in a way that is true to our hearts and our origin. It must be said, though, that we have aspirations of growth. We hope to be a great name in the design industry one day and the only way to achieve this is by making the first small steps.

    As Dave pointed out, it's important to keep the separation between work space and home space. I find that I work far better if I'm going somewhere to work, as opposed to sitting at home. I'm more focused mentally and less inclined to turn on the TV and watch some nonsense instead.

    @Riaan - You make a very valid point regarding the opportunity cost of doing admin work that could be cheaper when done by somebody else.


    As I pointed out before, the purpose of this thread was simply to get some discussion going regarding expansion and employing people. You have all provided some great input - most of which I had already considered and was looking for some affirmation. I have a pretty solid idea of where we are heading and how to go about it - I'm just making sure I have all my bases covered.
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    Email problem mother's Avatar
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    Make all your business decisions according to your business philosophy. That should guarantee that you are consistent and true to your brand in everything you do. A business philosophy helps even the most "creative" mind focus on making goal oriented decisions with long term accuracy. In my opinion your business philosophy and brand personality are intertwined, because your business philosophy should guard your brand personality.

    So to answer a question like: "do we move into commercial office space or into the garage?" you first consult your business philosophy. And I'm just taking a stab in the dark here, but if your philosophy is something like "being a humble giant", the answer becomes a simple yes/no, because your brand personality will be harmed by commercial office space, and better supported by a funky garage-conversion.

    At the end of the day you will put into action what your business can afford at the time, but decisions should have long term value, and even if you can afford something today, you should only commit to it if it fits your philosophy and brand.

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    Gold Member Mark Atkinson's Avatar
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    Thanks for the input.

    It has always been my intention to stay true to our business philosophy. It's what is stirring the success concoction we have going at the moment, why change.
    "The way to gain a good reputation, is to endeavor to be what you desire to appear." - Socrates
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    Diamond Member wynn's Avatar
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    If you really need an office occaisionally hire a spot at one of those shared office providers where you have an answered incoming line and a office address, secretary, and office or boardroom as required.
    Much cheaper than hiring your own space.
    Otherwise find a bookkeeper admin type that works from a home office and let her/him do the drudge for you.

    Mean time concentrate on what it is that you do right.
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