BUSINESS ESSENTIALS: Big lessons for growing companies - `Start up the search engine - we need a bigger office'

Spannerworks, a fast-growing company specialising in search engine marketing, is looking to move to more spacious premises. The problem is that if the business relocates to a much larger office and its growth rate were to slow down, it would be stuck with a large overhead for unoccupied space. If, on the other hand, Spannerworks opts for something just a bit bigger than its current premises, it could outgrow that within a year or so.

Adding to its dilemma is that the company is based in the Brighton and Hove area, which is known for its limited availability of office space.

Spannerworks' managing director, Arjo Ghosh, explains how the situation has come about. "We started in 1997, with two people working at home. We didn't borrow any money but grew organically, getting valuable experience during the internet's early boom years."

Today, Spannerworks is a highly successful agency in a flourishing industry. "Nearly half of all online marketing spend now goes on search engine marketing," says Mr Ghosh. "In fact, the industry is now a mainstream medium that has exceeded the size of the cinema advertising industry this year."

In the past couple of years, Spannerworks has been taking on an average of seven additional staff per year; the company now employs 21 people, and plans to have 30 to 35 employees within the next year. Meanwhile, its turnover is growing at a rate of 30 to 40 per cent year-on-year, with a current figure of pounds 2.6m. "We desperately need to move," Mr Ghosh says.

Ideally, he would like an open-plan space in a central location. "The centre of town may have problems in terms of parking, but as soon as you get out of town you get into industrial estates, and our staff don't want to move there," he explains. "In any case, clients come down from London as well as the rest of the UK, and we want to be easily accessible.

"We also want the space we work in to reflect the character of our agency, which very much fits in with quintessential Brighton. If we could be near shops and restaurants, perhaps even with a sea view, that would be great. We definitely don't want a bland office space outside central Brighton."

However, he can't find anything, and even when he does see office space that looks suitable, he's back to his dilemma of exactly how large the premises should be.

"If we move somewhere too big, we could be paying out costs on space we're not using - and you can never guarantee growth," he says.

"But if we find somewhere smaller, we may have to move again soon, which is an upheaval in itself as well as being expensive. And in a fast-moving industry, we may find ourselves in a situation where we have to move very suddenly and we'd still have a lease to pay."

www.spannerworks.com

WHAT THE EXPERTS SAY

Stewart Masterton, business adviser, Business Link for London

"Office costs are a significant overhead, so taking the time to find the best deal will avoid expensive mistakes. Options that offer flexibility are the best solution. The forecast staff increase of between 50 and 65 per cent over the next year would suggest that significantly more space is required, although this increase may not be sustained in the longer term. Spannerworks should take a pragmatic view of staff growth over the next three to five years before defining its space requirements.

"To avoid over-commitment, the company could take the smallest amount of space to meet its needs and sub-let excess space to cover fluctuations in staff levels. Homeworking should also be considered to deal with unexpected or short-term peaks.

"Alternatively, a number of smaller units offered via a serviced office company will allow additional short-term leases to be taken on, as they are required."

Pete Ferns, director, NatWest Business Banking

"Spannerworks' business seems to be flourishing and it sounds like the time is right to look to move to larger premises.

"There are a number of points to consider in choosing a new building. Is the location the right place for your market? Is it convenient for your employees or could it make it more difficult to recruit in the future? And can your business cope with the extra financial outlay?

"Over-commitment is obviously your biggest concern, so you should look at the initial expense of a larger building as well as the ongoing maintenance costs. At the same time, you should assess the existing larger contracts that you have and consider whether these can be relied on as definite business in the future.

"If you do decide to go ahead with a move to larger premises now, it may be worth choosing a building where you could sub-let office space to cover your overheads should your growth slow down." David Clifford,

senior partner,

Graves Son & Pilcher, Brighton (surveyors, valuers, commercial and residential estate agents and property managers)

"Spannerworks' dilemma is a familiar one among small companies.

"The business centres/serviced offices in the Brighton area offer accommodation from a few hundred square feet up to about 1,000 sq ft on short- term flexible leases or licences. But they cannot provide larger areas of office space as the companies expand.

"Bigger suites of offices are normally provided by private/institutional landlords, and historically they have been reluctant to grant short and flexible leases.

"This has now changed and office accommodation is quite often available on a five-year lease with a tenant's option to break at the end of the third year. However, the supply of suitable accommodation is limited and the demand is fairly constant.

"Spannerworks should seek suitable accommodation and negotiate a short- term and flexible lease."