Co-Working Spaces, An Option for Startups and Small Businesses

If you’re a startup or small business, finding the right office space for your business can be challenging. In addition, depending on where you are located, commercial office leases can be quite expensive. For commercial leases, landlords will typically require at least three years of financial information (ex: balance sheets, P&Ls, tax returns) from your business as part of the review process. A security deposit will be required at the time of signing (typically two to three months of rent). Landlords will also require the business to show proof of commercial liability insurance coverage and will want the building owner, landlord and management company named on the policy as Additional Insured.

Let’s not forget additional costs that may come with leasing an office space including utilities, cleaning, a HVAC maintenance agreement, property taxes and escalations. Many landlords will also require a lease commitment. While some landlords may allow for short-term leases (1-3 years), many will seek long-term leases (5-10 years).

As a startup or small business, you may consider running your business out of your home. While that may be suitable for some businesses, it certainly won’t be suitable for all. In addition, if your business requires frequent meetings with clients and vendors, having access to a professional office space and conference rooms become a necessity.

Co-working spaces have been growing quickly over the past several years. Companies like Regus, WeWork, TechSpace and The Yard, just to name a few, have swept up commercial real estate spaces and converted these spaces into turnkey co-working office spaces. Offerings may include virtual office space (access to a physical mailing address, phone number, voice mail, call answering service), day passes (day access to the facility, general meeting area, high-speed Internet), dedicated desk or office space of varying sizes (typically requires a monthly fee and commitment terms vary from month-to-month to 3, 6, 9 or 12 month increments) and flexible access to their other facilities and locations.

For startups and small businesses, turnkey co-working space agreements provide greater flexibility than typical commercial lease agreements, which help business owners manage tight operating costs. Co-working spaces may require a security deposit; however, they typically won’t require three years of financial information from the business. The monthly costs will generally be lower than a typical commercial office lease since you are only paying for what you need. Some co-working spaces may require that you carry commercial liability insurance coverage; however, the costs are generally more affordable since the office space will be significantly smaller. Utilities and cleaning services are usually included in the monthly fee and some conference room access (hours) may be included in the monthly fee. Some spaces may also include complimentary coffee, tea and water. Additional services may be purchased a la carte.

All-in-all, co-working spaces don’t sound too bad at all . . . so why even consider leasing a commercial office space?

While co-working spaces can be beneficial in the short-term, there are plenty of reasons why you’ll eventually need to find a suitable commercial office space.

First . . .  SIGNAGE! You’ve worked hard to make a name for yourself and your business so you’ll want your business name prominently up at the entry way to your office space. Unfortunately, the first name you’ll see with most co-working spaces will be the name of the company that provides the co-working space. While you may place signage for your business on the door to your individual space, you typically won’t be able to place any signage in the Reception area for the co-working space. This can be a major drawback for new business and potential business prospects.

Second . . .  Costs can add up quickly! The two major areas where your costs can quickly add up even if your office space needs don’t change will be conference room hours and Internet bandwidth. If you have a monthly agreement in place, it will typically include a fixed number of conference room hours as well as Internet bandwidth. If your business requires meeting with clients or vendors frequently, your conference room hours can add up very quickly. Likewise, if your business requires a lot of Internet bandwidth for uploads, downloads, streaming, etc., you could be faced with a ridiculously high overage bill for your Internet bandwidth usage.

Third . . . PRIVACY! Co-working space means there will be plenty of other businesses sharing the overall office space. Some co-working spaces don’t have fully enclosed offices. This means you can hear the activities of your neighbors. If you are able to find a fully enclosed office space within the co-working space, this might not be a big deal. However, if you happen to be in one of the spaces that are not fully enclosed, you might feel quite uncomfortable discussing business plans, strategies and so forth where nearby neighbors can hear those discussions. Granted, most co-working spaces may include privacy spaces (ex: phone booth-style privacy space); however, if you’re paying a monthly fee for an office space, you shouldn’t have to pop into a phone booth-style privacy space to have a conversation.

One other reason for eventually needing commercial office space is if your business grows, you will outgrow your co-working space. Sure, you may be able to find a larger office space within the co-working space; however, if that happens, you could be paying just as much (probably more) for the co-working space as you would for commercial office space. If that’s the case, finding suitable commercial office space will make much more sense.

Lastly, let’s not ignore the fact that there are alternatives to co-working spaces. For instance, you could lease part of an office space from another tenant (Sublandlord). While similar to a co-working space, the number of other businesses that operate within the office space will be limited, you may be able to work out signage at Reception, there could be more privacy and you can split/share the costs of overhead which will be mutually beneficial to both the Sublandlord and SubTenant.

Best Practices for Small Business Corporate Cards

A business credit or charge card can be helpful for business owners when it comes to making purchases and paying expenses on behalf of your business. However, it’s extremely important to develop best practices when it comes to managing and using these cards.

When applying for a business credit or charge card, determine the type of card that best suits your business needs. A business credit card, just like a personal credit card, will offer you a fixed credit limit and the ability to pay over time while a charge card will have no preset spending limit (not to be confused with unlimited spending power) and will typically require the balance be paid in full each month. It should go without saying that you should only spend what you can afford so that you can afford to pay your monthly bill in full every month. Paying over time will not only cost more in the long run (due to accrued interest) but also set you and your business on the path of accruing unnecessary debt.

As a startup or small business, you’ll want to find cards that offer no annual fee while still offering some bang for the buck (ex: sign-on bonuses, cash back rewards, points for every dollar). As your business grows, you may need to upgrade or switch to a different card that offers you greater benefits and rewards, but keep in mind that you may need to pay an annual membership fee to gain some of those added benefits and rewards. While paying an annual membership fee won’t necessarily break the bank, don’t go off and get a credit/charge card with a $400 or $500 annual fee if the value of the benefits and rewards do not help offset the cost of the annual fee.

A business credit or charge card, unlike a personal card, is intended for legitimate BUSINESS expenses only. Do not get into the habit of mixing business and personal expenses on a business credit or charge card. Cardholder agreements will usually state that business credit or charge cards are only to be used for business expenses. While card issuers may not audit every transaction made on a business credit or charge card, failing to keep your business and personal expenses separate can pose risks and liabilities including piercing the corporate veil and you could face penalties if your business were to undergo an audit by the IRS (ex: treating personal expenses as deductible business expenses). Just don’t do it!

If you are planning on issuing additional business credit or charge cards to employees, be sure to limit the number of cards to only those employees who absolutely require one for legitimate business purposes. Also, be sure to have written policies in place on the proper use of business credit or charge cards. Make sure every employee understands the current policies in place and provide refreshers as needed. As part of your written policies, you may want to include a policy requiring employees to obtain pre-approval or pre-authorization by management before any charges are placed on a business credit/charge card and/or set spending thresholds which require additional management approval.

Make sure that for every transaction on the card, there is a corresponding receipt for the purchase. You should also require that a monthly reconciliation (ex: expense report) for each card be submitted along with copies of all the corresponding receipts for the applicable charges. Be sure to thoroughly review every monthly statement for accuracy and to protect against fraudulent charges. It can also be beneficial to enable alerts on each card and on the master card account and to frequently monitor transactions on the cards. All card issuers should have an online dashboard which allows you to monitor all the card accounts and transactions on your master account.

With some business card accounts, card issuers will allow you to select billing options for your cards. For example, one option would be to receive a single master bill for your business credit/charge card account with a breakdown of each individual card and the respective charges.  The business, upon reviewing and reconciling the statement, can then pay the master bill each month. Another option would be to have individual credit/charge card bills issued to each cardholder. Each cardholder would then be responsible for paying their respective bills and then submit those expenses back to the business for reimbursement. The latter option would add an extra layer of protection for the business to prevent and deter unauthorized spending on a card.

Business credit and charge cards can be a useful and vital tool in helping a business owner manage and run his/her business, but like anything else, they must be used properly and responsibly.

Considerations When Starting A Business: Putting Together A Game Plan

Now that you’re ready and committed to starting a business, you need to put together a game plan. There are a lot of moving parts when it comes to starting a business so it’s important to be organized, detail-oriented and have all your ducks lined up. You’ll first want to take a “view from 10,000 feet” and then drill-down into the specific details.

During the process, gather information and be prepared to answer a series of questions related to your business venture. This information will be extremely helpful during the setup of the legal entity and establishing business operating parameters as you begin operations. In addition, if you need to consult with professionals (ex: business law firm, CPA firm), this information will help to streamline the conversation. You’ll learn quickly that streamlining conversations and meetings are crucial when dealing with law firms and CPA firms, especially if you don’t want to rack up enormous legal and accounting bills.

Below is a list of questions that you should seek answers to. This list is not intended to be a complete list of questions but serves as a starting point in putting together your game plan.

  • What type of business do you plan on starting?

  • Will you be the sole owner or will there be other owners?

  • Do you or any of the other owners have non-compete agreements (or similar) that would prevent or prohibit you and/or the other owners from joining or participating in this business venture? Are there any potential conflicts of interest?

  • Are you or any of the other owners currently participating in or are a part of another business venture, whether in the same industry or a different industry?

  • Will the business be owned by individuals, another business entity or a combination of individuals and business entities?

  • What will be the name of your business?

  • Is the business name unregistered and available to register with your state’s Department of State?

  • Are there any other individuals, companies or organizations using this business name or names similar that may cause confusion for clients/customers and/or pose legal issues (ex: trademark)?

  • Is the corresponding Internet domain name available for your business name?

  • Are the corresponding social media handles available for your business name?

  • What type of legal business entity is best for your business (ex: LLC – single-member LLC, multi-member LLC taxed as a Partnership, LLC taxed as a sub-chapter S, Corporation – C-Corp or sub-chapter S)?

  • What will be the designated role (ex: job function or area of responsibility) of each owner?

  • What does each owner bring to the table of the business venture?

  • How will the business be managed (by the owners, by designated managers, by owners and designated managers)?

  • How much starting capital do you and your partners have to invest in the business?

  • How much capital will you and your partners need to invest in the business to cover startup costs and at least the first three to six months of business operating expenses?

  • If you and your partners don’t have the necessary capital, how will you and your partners secure the necessary capital (ex: bank loans)?

  • Do you and your partners have a solid credit history and a good/excellent credit rating? Do you and your partners have collateral, if necessary?

  • When do you expect to officially begin business operations?

  • Will the business operate in a single state or multiple states?

  • Where will the principal office for the business be located? Will there be a single office location or multiple office locations?

  • Will you require commercial space for your business?

  • Will you be hiring employees?

  • Will you be using independent contractors or external personnel?

  • What resources will you require to operate your business (ex: supplies, equipment, software)?

  • Do you currently have or are you working with existing clients?

  • Who are your target clients or customers?

  • What’s your business plan or strategy for acquiring new clients or customers?

  • If your business requires inventory, how do you plan on acquiring, storing and securing inventory?

  • Will your business be required to collect sales tax?

  • Does your business operate within an industry that has industry-specific or governmental requirements (ex: certifications, memberships, licenses, permits, insurance)?

Considerations When Starting A Business: A Reality Check

So, why do you want to start your own business? Time for a REALITY CHECK!

This is a very important question to ask yourself and you’ll want to think this through carefully. You’ll recall in a previous post, Considerations When Starting A Business: An Introduction, I mentioned that starting your own business is not a decision to take lightly nor a decision to make hastily. If you plan to start your own business, you need to consider these “driving” words – discipline, dedication, passion, motivation, drive, sacrifice, determination, focus and commitment. These words describe what you will NEED to have to drive yourself and your business forward.

You may dislike your current job or your boss, feel unchallenged or stuck in your current position or simply need a change of scenery. While these factors may be part of the answer to why you want to start your own business, they alone should not be the ONLY reasons why you want to start your own business. You could just as well find a new job at a new company or seek a position with greater challenges and responsibilities. When you ask yourself WHY, you need to look at the big picture and your short and long-term goals. Challenge yourself to make sure this is the right decision for YOU!

As a business owner and entrepreneur, you will have a vested interest in your business. Its success and failures will have a direct impact on you. You will be responsible for setting the direction and steering your business through good times and bad. You will need to be the face of your business to clients and prospects. You will need to make investments in your business, take risks and make sacrifices. You will need to take an active role in the day-to-day management of your business, its activities and in making critical, time-sensitive decisions. You must familiarize yourself with every aspect of your business operations especially understanding financials and the importance of A/R, A/P, working capital, gross revenue, net income, cash flow and the P&L.

Sure, as your business grows, you can hire key, trusted people to help you steer and manage the business, but in its infancy, you will need to be extremely hands-on and involved. Even with the right people, you cannot be passive or take a back seat to your business. This is a mistake that some business owners make. If you want to be an employee, then find a job and be an employee. But, if you want to be a business owner and entrepreneur, you need to step up to the plate and be willing to give it your all.

Forming an LLC in New York? Don’t forget the Publication Requirement!

If you decide to go into business for yourself, you’ll eventually want to form a legal business entity. A common type of entity for startups and small businesses is the Limited Liability Company or LLC. LLCs are easy to form and don’t have as many requirements as Corporations.

A single member LLC is typically treated as a disregarded entity for tax purposes and a LLC with two or more members is treated, by default, as a Partnership unless an election is made to tax the entity as a Corporation (either as a C-Corp or sub-chapter S). If you are unsure about the type of legal business entity you should form, seek counsel from a business attorney and/or a CPA. These professionals can help you make the best choice for your specific business requirements.

Once you determine the type of legal business entity you should form, there are various ways you can go about forming the legal business entity. A business attorney or law firm can help you do the necessary filings with the appropriate state agency, usually your state’s Department of State. You can also use companies like LegalZoom.com, IncFile.com etc. to do the proper filings for you. Companies like LegalZoom.com and IncFile.com will typically prepare and file the necessary documents for a service fee with add-on services available a-la-carte. If you don’t have a complex situation, using LegalZoom.com, IncFile.com and the like can be a cost-effective option. However, in more complex situations, seeking a business attorney or law firm is highly recommended.

That gets us to the actual topic of this post which is the obscure requirement in New York referred to as the LLC Publication Requirement.

So, what is the LLC Publication Requirement?

Well, according to New York’s Department of State, Division of Corporations, State Records and UCC:

“Section 206 of the New York State Limited Liability Company Law requires that within 120 days after the effectiveness of the initial articles of organization, a limited liability company (LLC) must publish in two newspapers a copy of the articles of organization or a notice related to the formation of the LLC. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located, as stated in the articles of organization. After publication, the printer or publisher of each newspaper will provide you with an affidavit of publication. A Certificate of Publication, with the affidavits of publication of the newspapers attached, must be submitted to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. The fee for filing the Certificate of Publication is $50.”

What you may not realize is that companies like LegalZoom.com, IncFile.com and the like typically DO NOT handle the Publication Requirement as part of their service fee nor do they offer an add-on service to handle the Publication Requirement. Some companies do indicate on their site that they do not handle the publication requirement, but it may take some digging around to find the information.

BetterLegal.com does appear to handle the Publication Requirement for you provided you designate them as your Registered Agent, but you do need to dig around their site to find the information. USACorpInc.com is another company that will handle the Publication Requirement for you without being designated as your Registered Agent. They have a link right on their homepage navigation bar for “NY LLC Publishing.” If you don’t mind the work and you’re looking to cut third-party costs, you could opt to take care of the Publication Requirement yourself. Depending on what county in New York your LLC is located, the cost to publish in the required two newspapers will vary. For instance, running ads in Manhattan newspapers may cost $1000-$2000 whereas running ads in newspapers located in upstate New York may cost a few hundred dollars.  

There are exceptions to the LLC Publication Requirement for theatrical production companies:

“A limited liability company that is a theatrical production company is exempt from the publication requirements provided the words "limited liability company" appear in its name. Also, a limited partnership that is a theatrical production company is exempt from the publication requirements provided the words "limited partnership" appear in its name. See Section 23.03 of the Arts and Cultural Affairs Law.”

So what happens if you don’t comply with the Publication Requirement?

According to New York's Department of State:

“Limited liability entities that are formed or authorized to do business in New York after June 1, 2006, which fail to comply with the publication requirements within 120 days after their formation or qualification will have their authority to carry on, conduct or transact any business suspended.

Note that at any time following the suspension of a limited liability entity's authority to carry on, conduct or transact business, the limited liability entity may file the certificate of publication with the affidavits of publication of the newspapers annexed thereto, at which time the suspension of such limited liability entity's authority to carry on, conduct or transact business shall be annulled.”

While there aren’t any fines or financial penalties from failing to comply with the LLC Publication Requirement, suspension or annulment of a LLC’s authority to conduct and/or operate its business in New York can create potential headaches for your business down the road.

The New York State Senate has circulated several Senate bills over the years to update/amend the law with regards to the LLC Publication Requirement, which can be a burdensome cost to startups and small businesses. Until the day the New York State Limited Liability Company Law is updated/amended to remove the Publication Requirement, if you plan to form an LLC in New York, bear this requirement in mind.

Just a side note . . . if you operate a LLC in New York that was formed in another state (aka a Foreign Limited Liability Company or Foreign LLC), you are NOT exempt from the New York LLC Publication Requirement as per Section 802 of the New York State Limited Liability Company Law which reads:

“Section 802 of the New York State Limited Liability Company Law requires that within 120 days after the filing of the application for authority, a foreign limited liability company (LLC) must publish in two newspapers a copy of the application for authority or a notice related to the qualification of the LLC. The newspapers must be designated by the county clerk of the county in which the office of the LLC is located, as stated in the application for authority. After publication, the printer or publisher of each newspaper will provide you with an affidavit of publication. A Certificate of Publication, with the affidavits of publication of the newspapers attached, must be submitted to the New York Department of State, Division of Corporations, One Commerce Plaza, 99 Washington Avenue, Albany, NY 12231. The fee for filing the Certificate of Publication is $50.”

Considerations When Starting A Business: An Introduction

So, you’ve reached a point in your life and career where you want to take a leap outside of your comfort zone and are considering starting your own business. Maybe you’re tired of being an employee, dealing with a bad boss or working in a toxic work environment. Maybe you’re tired of changing jobs or putting up with a flurry of layoffs. Perhaps you’re tired worrying about job security or you’ve gone through so many mergers & acquisitions you’ve lost track of who your current employer is. Perhaps you don’t feel challenged enough or feel that you aren’t tapping into your full potential. Whatever the case may be, you’ve made a choice to embark on a new journey that will hopefully lead to many potential opportunities, personal & professional growth, achievement and self-fulfillment.

Starting your own business can potentially open the doors to various opportunities and be rewarding in many ways. However, it is not a decision to take lightly nor a decision to make hastily. If you plan to start your own business, you should consider these “driving” words – discipline, dedication, passion, motivation, drive, sacrifice, determination, focus and commitment. These are “driving” words because every single one of these words describe what you need to have to drive yourself and your business forward. If these words don’t hold any meaning to you, you’re probably looking at your business more like a costly hobby. If that’s the case, don’t do it!

There are many things you should know and understand before you start a business. We’ll touch on a number of these things in future posts. However, one important point to touch on briefly is that there are many factors that can affect the success or failure of your business. While you can take steps to mitigate the impact of many of these factors, there may come a time where the costs will far outweigh the benefits of continuing your business operation. To quote the song lyrics from Kenny Rogers’ “The Gambler,” - “You've got to know when to hold 'em. Know when to fold 'em. Know when to walk away. And know when to run.”

There’s a big difference between seeing light at the end of the tunnel and throwing money and resources into a big black hole. This is something you need to understand right from the start. You don’t want to “rob Peter to pay Paul.” You don’t want to be in debt. You don’t want to go bankrupt. You don’t want to be insolvent. If you reach a point where you’re going to shut the doors forever, you want to wind down operations in an orderly fashion on your terms!

If you haven’t been scared away and you’re still considering starting your own business, stay tuned!