July 2007 NEWSLETTER: Putting the PROFIT into your Not-for-Profit
"Putting the PROFIT into your Not-for-Profit"
This newsletter is a free service to the North American not-for-profit community from William Harper Associates. Its focus is on helping organizations that do good, do better ... by identifying cost-saving or revenue-generating ideas, in order to dedicate more resources to the organization's Mission.
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July 2007: Putting the PROFIT into your Not-for-Profit
This month's PROFIT idea is … rent out excess space!
If your organization has permanent staff, you probably have permanent space for staff (though the virtual office works well for many organizations). And, if you have space, whether owning or renting, odds are you are sitting on an underutilized asset!
So, how to generate some additional benefit from this asset - here are four possibilities:
1. Formal lease or sublet
2. Informal rent or sublet
3. Short-term rentals of meeting or similar space
4. Rent out virtual office space and service
But, before reviewing these, note that there are costs and risks to be addressed in every such arrangement. Tenants - long-, short-, or no-term - can:
- place demands on your staff ("can we get some photocopies?");
- constrain your own operations ("oops, our Boardroom has been rented out - we'll have to meet later.");
- bring risks (e.g. slip-and-fall) that need to be insured or otherwise addressed;
- cause security and privacy concerns ("we need to work in the office this weekend"); and
- breach terms of your own lease agreement if you do not own the space you occupy.
On this latter point, check the details of your lease - there may well be conditions or outright restrictions on subletting space, in which case a discussion with your landlord may be in order.
With these issues in mind, however, let's look at the different ways of maximizing the benefits of your space.
Formal lease or sublet
Maybe you've acquired a building or entered a long-term lease to accommodate future growth. Or, maybe you've downsized or outsourced an activity that leaves you with empty space. Either way, you've got surplus space with a reasonable prospect of it being surplus for some time to come. The time may be right to formally lease out some of that space to a tenant.
Advantages include a more stable and smooth arrangement, once the initial "learning curve" of the relationship is out of the way (and assuming you have found a reasonable tenant!). The rental income is also reasonably predictable and reliable (because you've assessed the creditworthiness of your prospective tenant!). Disadvantages include the costs of formalizing a lease agreement, and being locked in to the lease arrangement for an extended time period.
Informal rent or sublet
If your surplus space is of a shorter-term nature, or smaller (possibly just a single office, for example), a less formal arrangement may be in order. Other local businesses may need extra space on a temporary or seasonal basis that would mesh with your current excess. "Lending" of an office for a period of several weeks or months could help both parties.
Advantages to this include a relatively stable arrangement over the time period, without the long-term commitment and cost of a lease. The lack of a formal lease gives the other party more flexibility, too, however, so if their needs change, your extra income may disappear. Finding someone to share on this basis can be a real hit-and-miss exercise, too.
Short-term rentals of meeting or similar space
If you have a Boardroom, meeting rooms, or even excess storage space, you may still have some untapped potential. Renting out rooms for meetings to other organizations is a viable option.
Advantages include a relatively high rate per hour or day, and complete flexibility as to when to rent or not to rent. Once rented, though, you've made a commitment that you need to follow through on. And, you also need to be clear about the availability and use of ancillary resources such as kitchen and catering, audio-visual equipment, and Internet connectivity.
Rent out virtual office space and services
So, you don't have any surplus space? Well, you may still have capacity that you can leverage! How about giving another organization a mailing address or telephone answering service? Or, letting a smaller organization use facilities such as kitchen or photocopiers?
Here, you can let your imagination run wild. The entire infrastructure that you have in place to run your own organization presents possible services you can offer to others. Look particularly for fixed costs and underutilized resources, such as the not-too-busy receptionist or the idle office equipment that can serve others at no or little additional cost.
Now, where to turn to find customers? For most of these approaches, the answer is literally at your doorstep - other organizations in your building and neighbourhood are the best starting point. For formal sublease agreements, talk to your landlord (if you rent), since they may have potential tenants that they would be happy to have your help in accommodating. Other possibilities are related organizations (particularly in a federated environment), or those with similar missions or goals - this can help to ensure compatibility.
So, is it worthwhile? You need to assess all the cost, convenience and risk factors against the income potential. Even if you decide it's not worthwhile, however, you've made a conscious decision rather than simply walking past "money on the floor".
William Harper is a Chartered Accountant. As a former Chief Financial Officer, he had facilities and tenant relationship responsibilities for a 65,000 square foot building in the heart of Toronto. William Harper Associates' Facilities Leverage Analysis can help you unlock the potential in your space.
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