Finding an affordable and well-equipped premises that will suit their business is a big challenge for many start-ups.
Many business start-ups begin life in the spare room or garage of a house, but it' s only ever a stop-gap measure. Sooner, rather than later, budding entrepreneurs are going to be faced with the prospect of getting a premises to base their business. And they will usually find it is neither easy nor cheap.
"The jump involved in going into a rented property is massive for some of businesses," says Mark Fielding, chief executive of Isme, the lobby group for small business. "And at the moment, rents are very high, whether it is office or manufacturing/commercial space. Commercial rents at the moment are really prohibitive for young businesses. The corporate stuff hasn't come down the way the residential stuff has come down."
According to a recent report by the Dublin City Enterprise Board, the demand for space in combination with limited supply and favourable investment conditions, have exerted strong upward pressure on prices, making it difficult for many small businesses to find affordable premises.
"The level of demand also affects the availability of small units, as it is easier and more cost effective for developers to build larger units on available land. Dublin City is particularly affected by a shortage of small units due to a severe lack of serviced 'ready to go' sites in the area," it said.
With cash likely to be in short supply or earmarked for R&D and marketing, new business is usually looking at signing a lease and that can be a veritable minefield.
"For start-ups, your property and your wages are going to be your two big expenses," says Sean O'Riordan of Cork-based Fitzgerald Solicitors. He advises new businesses to compile an extensive checklist.
"How long will I need it? Is it going to be big enough if I expand? The advice I would give any start-up business is make sure you have enough room for a little bit of expansion if that is your business plan," he says. "You'd want to know what your service charges are going to be and what the hidden costs are going to be. Plus, people don't factor in rates either. All commercial buildings will carry rates."
Entrepreneurs should also see if they can negotiate a break clause allowing terminating the lease after a certain fixed period, such as six months. Is there a rent review clause and does the premises have planning permission for the activity you intend carrying on? This is a particularly important consideration for manufacturing businesses, according to Fielding.
Lack of broadband is another major issue, he says. "Access to broadband in many cases is a joke - it is one of the things holding back many small businesses."
But for many start-ups the idea of signing a lease is a step too far. Accessing incubation space through county enterprise boards, colleges, enterprise centres or innovation parks is one answer. Enterprise centres play a key role in improving the survival rate of business start-ups, according the DCEB. The survival rate within centres is typically 80 per cent plus as compared to an overall rate of around 35-40 per cent.
In addition to providing low cost space, enterprise centres also provide additional benefits such as flexible license agreements; sharing of resources; networking opportunities; opportunity to progress into larger units; access to advice, mentoring, training; access to local business opportunities and social and psychological support.
"You don't have to sign a lease," explains Cairín O'Connor of the Bolton Trust which runs the Docklands Innovation Park. "If you look for an office in town or go to an auctioneer, immediately they want you to sign a lease for four years and nine months. With us start-ups can just sign a license agreement which is basically just month to month or quarterly.
"They don't really know starting out what their requirements are. With us they can very easily expand into larger space."
As well as infrastructure, such incubators provide a one-stop shop for entrepreneurs.
"Start-up businesses need a minimum standard - broadband, office space, restaurant, security," explains John McInerney from the Dublin Business Innovation Centre which runs the Guinness Enterprise Centre (GEC).
"They need business development advice, they need flexible space and they need access to finance and the GEC would have all three."
Incubation centres also provide high potential start-ups with the right image, according to Nicola Mountfield of the Synergy Centre in the Institute of Technology in Tallaght.
"These companies will often have very large clients, say they are trying to sell into large multinational clients, what they are trying to do is try to give an impression that they are established and large," she says.
"In a lot of cases, people are looking for something that will allow them to do that, that portrays the right image, that has the right address, has the right meeting facilities, that has reception facilities without paying the price they might need to do that in the real world."
BUSINESS ANGEL CASE STUDY
OPENPLAIN
A lot of Jonathan Mulligan's time is being taken up with finalising his start-up's Business Expansion Scheme investment round.
"Along with our accountant and solicitors, we have to update our business plan, annual budgets, articles of association, share holders agreement," explains the managing director of Openplain which recently launched its JournalLive online monitoring service.
"We have to complete a due diligence process which includes customer interviews, technical assessments, organising audited accounts and we have to prepare a number of investment-related documents including subscription agreement, syndicate agreement, etc.
"It's quite time consuming," he says.
And alongside the tough and time-consuming task of raising finance, the company is pressing ahead with the everyday work of research and development.
"Thankfully our technical team has been busy doing their thing and we will be launching a new product on February 11th called TeleworkJournal.com, which is aimed specifically at the teleworking market," says Mulligan.
The SME sector in the US employs 69 million people. It is estimated that 39 million could engage in some level of teleworking but only 14 million do so, according to Mulligan.
"While it's increasing by a million per year, employers are still often reluctant to allow their staff to work from home due to fears of the negative impact on productivity," he explains.
"TeleworkJournal.com allows remote workers and their managers to share their PC productivity statistics, enabling employers to allow their staff to work from home, safe in the knowledge that they're performing to agreed goals.
"At the moment we're talking to consultancy companies and resellers with a view to forming partnerships to sell the service internationally and getting great feedback so far," he says.
FLUIRSE
Kerry-based e-learning company Fluirse is in the final stages of moving into its new 4,000 sq ft premises and is putting the finishing touches to its plans to raise €400,000 though the Business Expansion Scheme.
On the commercial front, the company recently purchased Pitman Training Tralee and Pitman Training Cork, a business, computer and office skills training company.
"Pitman Training Tralee has been up and running for over three years," says Fluirse director Tomas Finneran (pictured right, with business partner Kristian O'Donovan).
"Pitman Training Cork opened on February 1st, 2008.
"We have just secured a state of the art training premises in Blackpool Retail Park," he says.
According to Finneran, the new acquisition will allow the company to generate working capital while carrying on design and development of new interactive media and software that is specifically aligned to the subject curricula in primary schools.
The company also revised its plans to establish a non-executive board of directors in 2008.
"We decided to limit the board to five members initially gaining expertise in accounting, business strategy, education and sales and marketing," says Finneran.
The company has also been busy in other areas, he says. "We were tired of waiting for some Government action, so last month we decided to donate free software and campus-wide licences to all primary schools categorised as 'disadvantaged' by the Department of Education.
"These CDs were distributed in December to the 600 or so schools," says Finneran.
"The total value of this donation came to approximately €200,000, which is approximately €200,000 more than the Government spend from the allocation ICT fund as outlined in the NDP last year," says Finneran.
We continue our series on companies seeking to raise cash through the Business Angel Partnership. This month, we revisit Openplain and Fluirse to see how they are progressing
