Just as you review office procedures from time to time to determine their efficacy, likewise you should periodically evaluate your office space to determine whether it is really meeting your current needs. Occupancy cost represent a practice’s second largest expenditure next to personnel expense. Your office space’s ability or inability to meet your needs will significantly impact your bottom line and it deserves your attention. Such a review should involve five steps.
First – Do you have at least a basic understanding of the business terms relating to your office lease. In the case of leased space you should consider creating a lease abstract for each lease. A lease abstract is nothing more than a concise explanation of the important terms of a lease. In the case of a lease how many square feet do you occupy both rentable and usable? When does the lease come up for renewal? Do you have a renewal option and if so how much notice do you need to give for a renewal? What is your base rental rate? What does that rate cover? Is there a mechanism for challenging operating expense increases if you feel they are out of line? How much does the base rental rate escalate each year?
Second – You should complete a needs assessment, a fresh look at how your office does function as opposed to how it ideally should function. Make a list of your current office space needs. Have these needs changed since your last review? Are you contemplating additional providers and if so will they be doctors or other types of providers? Particularly as you approach the final year of a lease you should objectively consider whether your current space satisfies your current needs in terms of flow and the adequacy of its component parts. Over time the needs of the practice change, sometimes in subtle ways. You adapt those changes to the space you have and make it work. The office review is a time to take a fresh ground up look at the component parts such as the number of exam rooms, the size and layout of the lab, the size and layout of the front office, the size of the waiting room and the number of staff working in the front office to see if you really have the components you need, arranged in a manner that creates the most efficient work flow.
Third – Once you know what you have and what you need, you can determine your options for getting there. Does the area in which your office is located still fit your needs? If you are a hospital based practice are most of your patients still admitted to the hospital nearest your office? Have your patient demographics changed since your last review? Even if you have significant time left on your lease you may be able to make changes that would have a significant impact on operating efficiency which could justify their cost. If your lease is coming up for renewal and you have made a determination of your needs you are ready to assemble a list of available alternatives that encompass those needs. Practices often don’t take the time to look at all their options. They often just look at a few possibilities, generally the most obvious. Your time is a precious commodity and it is always in short supply but don’t short change the process. For an item which affects your bottom line so significantly it just makes sense to take the time to do your homework to make sure at the end of the process that you have picked the best option. Otherwise you will live with your mistake for a considerable period of time. Consider hiring a professional if you don’t have the time or the market knowledge to work through the process of assembling and analyzing your alternatives. Once you have a comprehensive list you need to whittle that list down to a workable number of alternatives, usually 2 or 3. Negotiate between those alternatives to find the alternative which offers the best combination of lease terms, location and efficient layout.
Fourth – Following selection of the best alternative the next step is the negotiation of a lease document with that alternative. As a part of choosing the best alternative you will have finalized the business terms, now you need to make sure that you negotiate a lease document that will be survivable. The majority of lease terms will never be used but it is nevertheless important that you negotiate all of the lease provisions as if they would be invoked so that if an unforeseen event does occur it will not devastate your practice.
Among the issues which should be negotiated in your lease agreement:
Assignment and Subletting
Make sure that you will be allowed to sublease your space if a change in the practice should arise as the result of growth, contraction or the need to close the location.
Make sure that throughout the lease the Landlord cannot unreasonably withhold, condition or delay it’s consent.
Full or Partial Destruction.
In the case of full or partial destruction of your space make sure that the Landlord gives you notice of their intent as soon as possible and that the period allowed for rebuilding your space is as short as practical. No one benefits from damage to the building and it is important that the landlord work with you to help you survive an event which would be devastating for everyone concerned.
Fifth – The final step in the process is follow through. You have a space and you have a lease, now you need to follow through the construction process to make sure that you get what you negotiated. Tour the space periodically checking the construction against the space plan you agreed upon in the lease. It is particularly important to walk through the space with the contractor prior to the cover up inspection. This gives you a chance to look at the construction far enough along to see if there are construction errors but early enough to minimize the cost of any revisions which the tour dictates. In that tour you will be looking for two things, elements which have not been constructed according to the plan and elements which are constructed according to the plan but when viewed in three dimensions don’t work the way you intended and therefore need to be changed. Once the space is finished you will walk through the space with the contractor and do a punch list of items that need the contractors additional attention.
A fresh look at your office space provide real benefits. Time spend on the search and negotiation process is time well spent with benefits that extend to your practice’s bottom line.