Over the last few years, the demand for flexible work has exploded. As a result, new coworking spaces open their doors every day and try to provide individuals and companies with a fresh, collaborative work environment.
But like all other businesses, coworking spaces require sound financial planning in order to survive. As an operator, you need to have a clear and sustainable path to growth and profitability. This requires a good understanding of factors like your revenue streams, cost structure, and much more.
In this guide, we will delve deep into the topic of coworking finances and the key financial factors that contribute to long-term profitability.
Revenue is the easiest starting point for evaluating your space’s financial health and building a financial model. Specifically, you want to figure out what percentage of revenue is brought in by different parts of your product mix.
Most coworking spaces generate the majority of their revenue from memberships — the monthly or annual payments made by individuals or companies that use their workspace.
There can be tons of versatility here, with some memberships offering dedicated desks, private offices, more meeting rooms, and so on. In fact, diversifying your memberships can be a fantastic way to generate more revenue for your space.
Besides memberships, coworking spaces can also:
Once you get a good understanding of your revenue streams, it’s time to do the same for your expenses. For most coworking spaces, the overall cost structure is made up of 6 components:
At this point, you should have a good understanding of your revenue and expenses. The whole goal of this exercise is for you to determine the number of memberships and additional services you need to sell to break even and generate a profit.
Doing this will let you set realistic targets for your sales and marketing activities, as well as find an optimal pricing strategy for your business.
You can perform this analysis by taking into account:
With that information, you can calculate your breakeven point (BEP) with the following formula:
BEP = Fixed Costs / (Average Revenue per Member – Variable Costs per Member)
This metric is essential as it helps you make an informed decision about growth targets, expenses, and financial sustainability.
Additionally, you want to take into account two other metrics when doing these projections:
Bad weather, natural disasters, city protests, or economic downturns can all affect your business. Since you can’t do anything to prevent these situations, your best bet is to set aside some money in case they occur.
For example, it may be a good idea to reinvest 5-10% of your profits into an emergency fund to help you navigate challenging times without reducing the quality of your service (or worse — closing down your space).
Running finances for a coworking space is a complex, multi-tiered task. Taking into account the factors we outlined above will give you a great starting point for tackling that task and getting a good understanding of what you need to do to turn a profit.
However, finance is just one part of success in the coworking world. For more tips on marketing, increasing revenue, and boosting operational efficiency, check out the rest of the resources in our Flex Academy.
Flex Academy is our collection of articles and other materials for starting, running, and growing coworking spaces. Here are a few additional resources you might be interested in:
In addition, don’t miss out on checking the OfficeRnD Flex Startup Program that gives you amazing discounts on our coworking management software.
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