A common question we get asked when start-up businesses employ our accounting services is “do I need to get an office or can I work from home?” and it’s a good question! So I thought I’d write a quick article just outlining the pros and cons of both working from home and renting an office space.
Financial Reasons
So one of the main reasons for working from home is because there’s (of course!) a serious financial obligation to renting an office space compared to your own home which is free! However there are a few aspects to consider before simply saying “My home is free, I’ll just work there!”.
The key thing when working from home is that you can claim every utility bill and rent/mortgage interest in taxable expenses within your tax return. This is great since it can heavily reduce your tax bill each year.
The main thing to note whoever is…do you pay a mortgage or do you rent your home? The only reason I ask is because you can claim the ‘use of home as an office’ proportion of your entire rental rate, but only the interest part of your mortgage! This is always a deal-breaker for me since you can claim a LOT more in taxable expense if you rent your home compared to paying a mortgage, since you can only claim for the ‘business use’ proportion which is typically 22% if you work Monday-Friday 9am-5pm. So if you pay £1000 in rent per month then you can claim £220 of that rent every month! However if you pay a mortgage you can only claim 22% from the INTEREST on the mortgage which is typically 3%…so by comparison you could only claim 22% of the 3% interest…which will equate to very little by comparison.
Also although your utility bills are tax deductible expenses, you will of course need to pay them each month before you can claim the tax off your final tax bill – and when working from home you will use a LOT more electric, water and gas (especially in the winter!) when working from home 24/7. Whereas if you can find an office space which includes utility bills then you can save a lot of money there by comparison to working from home.
Professionalism
The main issue when working from home is that it doesn’t come across very professional to clients, especially if you ever want clients to come to you for meetings or work in an industry where you need to work alongside your clients occasionally and will need them in your office. Therefore if you are in an industry which requires constant meetings with clients coming into your office then I’d strongly recommend getting an office space.
Or if you like working from home and only occasionally have clients come to the office then my advice would be to simply hire an office room for the day from organisations like Regus etc (other office rental companies are available!).
Alternatively if your main concern is people knowing your business address is a home address then you can also rent a ‘Virtual Office’ (again Regus offer this service here) which gains you a professional-looking business address at an office block but at a fraction of the cost of actually hiring an office. This of course helps for adding businesses on Google Maps (in case clients ever ‘street view’ your location) and for listing your location on your website with a more ‘business’ sounding address.
However if you are in an industry which solely relies on you going out to clients then working from home could be the cheaper option since you don’t need to worry about this aspect.
Staff Members
Another key aspect which can push people into renting an office space is when they are looking to expand and start hiring staff and suddenly realise their ‘spare back room’ at home isn’t substantial enough to fit more than 1 person! For me as soon as you have an outside member of staff (not family or friends) then you really have to bite the bullet and start renting an office space.
The thing is, if you’re at a stage where you’re looking to take on multiple members of staff then you’ll very likely have a business plan with forecast projections on how much you will make by hiring another member of staff. All you need to do is simply factor in the cost of the office space as part of taking that additional staff member(s) as a capital investment (so to speak) to ensure a much easier work space for multiple staff.
Productivity
The biggest factor for most sole-trader type businesses when deciding whether to work from home or an office is self-motivation. Are you the type of person who is easily distracted and knows that working from home would be extremely bad for productivity? We’ve all been there, working from home on a project you really don’t want to be working on when suddenly you walk past the television…”I’ll just watch one episode of [x] to take my mind off the stress then I’ll get back to it” …*10 episodes later… haha. Or are you the type of person that is very focused and can easily sit in their own home without worrying about the temptation of being at home?
If you are easily tempted then the cost of hiring an office will actually outweigh the lack of productivity you would perform whilst working from home, simple as that. It’s so much easier to work in the right environment and without any distractions at home and you’ll be suprised at just how much work you can get done when you’re 100% detached from your personal life.
No matter how focused you are as an individual, when working from home it’s very easy to start falling into traps such as ‘running a quick errand’ or ‘cleaning this quickly’ or ‘I just need to sort this out’ because you take for granted that you are physically at your home – but this can equally become very bad for your business when you suddenly realise you’ve got into bad habits and start to miss important calls or reply to emails later. So sometimes just taking yourself away from your home environment can actually make you more money since you are 100% focused and get much more work done.
For me, they are the top 4 aspects to consider when deciding whether to work from home or get an office space. Both have their pros and cons but you’ll naturally just know which is the right option for you once you’ve worked in each location. Working from home is usually the cheapest option but not always the best option as I’ve explained above so don’t let finances fool you into making the wrong decision. Equally don’t fall into the ‘professional’ trap of getting an office just for the sake of having one when you really don’t need one!