Nick Clark at GCUC USA 17 Camp Session
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Finance – Nick Clark – GCUC USA’17 CAMP Session

CAMP GCUC is a unique experience GCUC offers every year. It aims to give the new enthusiasts coming into the coworking sphere a one-day crash course covering four major areas of the business – finance, design, community, and technology. It has been a vital force behind the rise of many new creators in the past years.

GCUC USA’17 CAMP started with Liz Elam – the Executive Producer of GCUC and Link Coworking – giving a brief idea about how coworking has placed the seed of human revolution in the world. Then she called on the first presenter Nick Clark to speak on the crucial points regarding the financial management and answer related queries from the audience. Aided by his background in office leasing and management in the commercial real estate, Nick opened Common Desk in 2012, Dallas’s first shared workspace.

He began by stating their rule of thumb, “If the numbers don’t work, don’t open.” Nick’s suggestion for people planning on opening a similar space is to never spend money without documenting it. With your organized paperwork, you can set a bank account right away. It will also help you to select suitable software for book-keeping and merchant service respectively.

Real Estate

Location

When choosing the location of the space, Nick stresses the importance of first figuring out what you are trying to achieve. Next step is to find a suitable neighborhood which can help you attain those goals. He recommended going for second generation spaces if the funds are limited because, in these areas, 75% of the build-out is already completed. You will also need someone on your side during the negotiations, therefore it is essential to find a broker suitable for your needs.

Lease

For office leasing, the ideal model for a tenant is the full-service lease because you only have to pay the quoted amount. On the other hand, the NNN lease can add a lot of cost to your rent since it includes taxes, insurance, common maintenance along with utility charge. So before signing an NNN or triple net lease, make sure you know precisely what those nets are. Percentage rent can also be a great tool to align yourself with the landlord because it is highly negotiable. You have to ensure that the lease does not kick in until you hit a particular number.

Landlord’s Concessions

About capital improvements, Nick mentioned most of the landlords include the cost to do a space plan for you within the budget. If they do so, convince them to pay for a few pricing nodes to add to that program. Thus, you will have enough material to meet a few general contractors and get a decent bid on how much will it take to build that space. “Concessions are all incentives the landlord is offering to get the deal done,” Nick said. These include free rent, space planning, tenant improvement allowance, etc. Also, if you are having a hard time securing and making partner, the landlord can also increase those tenant improvement dollars by amortizing an additional amount of your rent. Even if you pay a higher rate, it will be your smartest option to get some money if you do not have any.

In response to a question about the length of an average lease, Nick advised it to be as long as possible with the landlord’s agreement. It should be more than five years ideally. Anything less than that would be inconsequential in the coworking business.

Space Planning

Space planning is essential to budget your startup cost and also to create your pro forma for the next couple of years operating the space. Typically a space plan can tell you the exact count of seats, dedicated desks, dedicated offices and their respective pricing. FF&E – furniture, fixtures, and equipment – is something most beginners usually forget. However, Nick recommended that one should work on it even before having space because it is more expensive in coworking than in traditional offices.

Revenue 

Next step is to start working on the revenue model. It varies from space to space and having your model is okay as long as the management mentality is correct and the community spirit is there. Nick prefers a mix of both dedicated offices and shared desks. He uses the former in bigger spaces and the latter in smaller ones. There are other revenue options namely events, cover terminals, cafe, etc. to consider. He suggested not doing too many of these right off the bat. Whatever service, the space wants to provide besides workspace, has to be done well and then they can move on to the next service.

Membership Structures

He believes one should do a market analysis to determine standard membership rates. Regarding the ratio of people to shared desks, Nick suggests going for the conservative 2:1 as opposed to the daring 4:1. He also mentioned Common Desk has a hard rule of ‘one membership per person’ no matter how often they use the space. This approach saves them from all the hassle that comes with discounts. Additionally, if your space is doing a price increase, you should be able to explain the reason to its members.

Internet

The Internet is expensive. Nick recommends getting a good pipeline coming into the space and then servicing it well with the equipment that is broadcasting the Wi-Fi. One of the audience members brought up wired internet. Nick mentioned that ‘wired internet’ can be an added revenue stream for the space. If you wish to take that route, he suggested wiring all the offices and then charging the members extra per month for the dedicated line.

Budget Pro Forma

Now that you have a full picture on what counts as the financial aspects of opening and operating a coworking space, you are ready to work on the budget pro forma. Nick advised creating two tabs while setting up the budget pro forma. Tab one will include the startup costs including capital improvements; it will give you a good understanding of the cash you spend to get the space open.  Tab two will have the statement of cash flow, which also includes some of the big capital improvements you will have after you open the space. So, if you have a triple net lease and your 5-ton H-pack unit goes out six months later, then you have to pay for it. It would be a hefty sum, hence having a contingency cash plan is essential.

Capital options

How are you going to raise the money? Some of the common options include; bankrolling it yourself,  leveraging some of your landlord’s’ concessions, crowdfunding (much more flexible now than before, you can give out equity with this option). Another option is securing a loan with a financial institution.

Final tips / Words of encouragement

Lastly, he warns that coworking can be seasonal so make your budget seasonal. A lot of times coworking follows the school year, so it makes sense when a lot of shared space members cancel their memberships when summer hits and they go on vacations. One of the hacks employed at Common Desks for seasonal coworking at Summer is to have an intern membership for summer only.

Nick also stressed the importance of including a capital reserve in your budget, that way you have some money to fall back on if you face a rainy day.

He also brought up the widespread concept of building the community first, followed by setting up the space based on the community needs. This way, you will have authentic enthusiasm and positive energy all around your space from day one.

The other thing to follow is establishing efficient monthly reporting and looking into your cash flow, income statement and balance sheet every month. Nick’s parting words to the audience was a simple reminder, “Just remember it is all a process. So no need to get overwhelmed. Just put one foot in front of the other.”

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