How Much of Your Operational Expenses Should Go to Rent?

Rent and maintenance expenses take a big chunk of the operational costs of a small business. If you are not careful, you might be forced to move out or worse, close shop.

It’s crucial for small businesses to factor in the monthly expenses of the office space for rent San Jose. This allows you to prepare for any contingency when their situation changes. As you know, the odds are against businesses surviving the first year of operations.

In the United States, there are more than 30 million businesses that are classified as small. They make up 99% of the firms in the country. However, the classification has several gradients. It’s not just as simple as saying that because you have 100 employees, you are not considered small.

The Small Business Administration classifies a business as small if it earns between $750,000 (or below) and up to $35.5 million.

How Much Should You Pay for Rent?

There’s no fixed formula in computing the percentage of your operational costs that go to the office space for rent in San Jose.

There are two types of formulas used to compute the percentage rate:

1. Rent and gross income ratio — The gross income is the total when you subtract all the cost of goods sold.

2. Rent and revenue ratio — Revenue is the amount you get when you multiply the selling price of your goods by the total number of pieces sold. This ratio is also called the occupancy cost.

Often, these two factors are interchanged.

How Do You Calculate the Percentage Ratio?

The formula is quite straightforward.

You look at your projected revenue or gross income and then divide your current rate of rent. If your monthly rent is $4,000 that amounts to $48,000 a year. If your revenue projects placed your sales at $500,000, the percentage ratio of your rent against your operational expenses is 9.6 percent.

Do you think you can absorb that cost ratio? Remember that it only covers your rent, you will also consider other associated costs that come with office space for rent, San Jose. You also have to look at maintenance costs, property taxes, insurance, and others.

The ratio of your rent against your expenses will depend on your goals and the status of your finances. However, typically, a rate of around 15% or less would not result in your business folding up although companies in retail have a narrower ratio absorption of between 5 and 10%.

However, if your revenues swing widely up and down, you should have a contingency plan in case your sales plummet. That may cause you to back up on your rental dues. Two things happen, you may pay an interest rate, or you will be forcibly evicted.

If you are looking for office space in San Jose, let Office Finder help you. They have an extensive list of partner realtors who know Silicon Valley and the immediate neighborhoods well. You need to input your list of requirements for your office space, and the website will do most of the hard work for you.

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