How to Write an Effective Business Plan for a Coworking Space
Getting into the cowering industry can be a smart business move - but there are a lot of factors to consider to ensure your plan is executed well.
The global popularity of coworking spaces is growing rapidly. According to SmallBizGenius, there were nearly 19,000 coworking spaces and 3 million coworkers in 2019.
Coworking spaces largely benefited freelancers and small businesses, allowing them to organize a flexible work environment. However, as the popularity of coworking spaces spreads rapidly, freelancers and small businesses are no longer the only ones to enjoy the advantages that these spaces can offer.
SmallBizGenius also reports the 90% increase in the number of enterprise companies and a 360% increase in members from enterprise companies that have incorporated this form of workspace organization. The source claims that big corporations like Microsoft, Spotify, Pinterest, and many others have shown immense interest in the potential of coworking spaces.
As you can see, the prejudice that small companies and freelancers are the only target audience for coworking spaces has nothing to do with reality anymore. So, if you are planning to open a coworking space, you need an efficient and inclusive business plan to make sure that both small and large businesses feel comfortable there.
Here’s what you need to create such a business plan.
Research the Local Market and Include Projections
The coworking space industry changes quickly. Just from looking at the numbers mentioned earlier, you can already see how this industry went from catering to small businesses and solo entrepreneurs to including big corporations. So, if you plan to open a coworking space, you need to study not only the current state of competition and demand but also the predictions for this industry in the future. Where should you start?
Let’s say you want to open a coworking space in the Los Angeles area. To research your local market, you can follow these steps:
Step #1: Do Local Industry Overview
Start with the current industry overview to study the overall demand as well as your main competitors in this field, their portfolio size, and market share.
Image credit: Cushman & Wakefield
This will help you get a realistic picture of who your competitors are and how active they are in your area.
Step #2: Research Coworking Space Activity by Location
If you are planning to launch a coworking space in a big city, you need to break this area into several smaller locations to understand, where you can potentially open a coworking space without facing too much competition.
For instance, in the Los Angeles area, there are a few smaller locations where you can find many popular coworking spaces:
Image credit: Cushman & Wakefield
These stats can help you determine locations with fewer coworking spaces but a high demand for them.
Step #3: Study the Local Industry Development over the Years
To have a better understanding of how fast the coworking space industry is changing, you can study the progression of its development over the years.
Here’s an example of what the development of the coworking space industry in LA looks like:
Image credit: Cushman & Wakefield
On this graph you can see the existing coworking inventory and coworking additions over the years, indicating that the industry experienced an immense boost over the past three years. With these statistics, you can predict, how fast the industry will be developing in the 2020s, giving you a clearer idea of the real demand for the coworking space services.
Step #4: Analyze the Gig Economy Growth in Your Area
While big corporations are only getting introduced to the concept of coworking spaces, startups, solo entrepreneurs, and freelancers are still the main target audience in this industry. So, your task is to understand, how fast the gig economy is growing in your area and how many freelancers and small businesses will work in your location in the upcoming years.
For instance, in LA, the number of freelancers has been rapidly increasing over the years. Now LA occupies the second place in terms of the gig economy growth, which will not change in the 2020s.
Image credit: Fiverr
These statistics can help you understand how fast the gig economy is growing in your area and to determine the future demand for coworking space services.
Focus on Differentiation Factors
Let’s talk more about your competition. To create an effective business plan for your coworking space, you need to have a clear understanding of what differentiates you from your competitors.
You can figure it out using the system of differentiations:
Service differentiation. Study your service in terms of features, performance, price, niche, and other criteria, and compare it to the same criteria applied to your competitors’ services.
Marketing differentiation. Analyze how you want to attract new customers vs. how your competitors are doing it. Sometimes by looking at these differences, you can come up with unique promotion ideas and use them to your advantage.
Relationship differentiation. How do you want to build relationships with your customers? Which coworking space services will you offer that will differentiate you from your competitors? Answering these questions can help determine, how you will build your networking of customers.
Competitor analysis is necessary to ensure business continuity and to help you understand, what the coworking space industry lacks right now and what you can offer in return.
Include a Financial Breakdown
Financial analysis is an important plan of creating an effective business plan for a coworking space. If you have partners, you will have to present this analysis to them, taking into considerations all the budget details.
So, what does a financial breakdown include?
1) Expenses and project costs
This part should include an outline of your capital expenditure, from real estate costs to setup costs.
So, when creating your capital expenditure outline, analyze the following:
Initial costs. Rent expenditure, security deposit, as well as legal fees (costs of registering your coworking space, setup costs (furnishing expenses, construction, and other related costs), and marketing expenses.
Recurring costs. Monthly rent expenses, utilities and Internet costs, supplies (kitchen, bathroom, as well as operational expenses), salaries.
Initial costs can also include lost salary expenses if you plan to put the operation of your coworking space on hold while you prepare to open it.
2) Sources of Project Revenue
Here, you should consider two major aspects:
the costs of your membership plans
the costs of coworking space leasing
The prices for both of these services should be created based on the analysis of initial and recurring costs we touched upon earlier (rent, office maintenance costs, utilities, etc.). The costs of membership plans should also be based on how many members your coworking space will accommodate.
3) Additional Expenses
When drafting your financial plan, you should also keep in mind some additional expenses, which may include:
additional utility expenses, such as plumbing issues or equipment repairs
staff turnover issues, including hiring seasonal staff or paid interns
business expansion costs in case you want to open more coworking spaces under one brand
exit strategy expenses in case your business doesn’t become profitable or cannot withstand competition
Your partners might be interested in the analysis of these additional expenses as they frequently occur and need to be prepared for.
When creating a financial report for your business plan, you might also be interested in cooperating with a writer who has experience in drafting such documents. You can find such specialists at academic writing service, and they can help you outline all the necessary expenses as well as prepare a presentation of your financial plan.
Articulate Your Marketing Strategy
Since marketing expenses are an important part of your financial expenditure report, let’s talk more about what this strategy should include, so you could better understand where your expenses will go.
Here are a few important factors to consider in a marketing strategy for a coworking space:
Website launch. One of the crucial steps in the initial phase of your marketing strategy. Here, you will need to take into account the expenses on designing and building a website as well as the costs of website maintenance in the upcoming future and the ongoing SEO optimization you’re your website.
Content marketing. The necessary step of promoting your coworking space services. Consider, how much content you would like to create and whether you will have your marketing team do it or outsource this task entirely to an agency.
Advertising, social media marketing, and outreach. An important part of promoting your business using different platforms. Consider the expenses that will go into Google advertising or social media ads, as well as the financial benefits of doing outreach.
Depending on how fast your business grows as well as on each marketing campaign that you launch, the expenses on your marketing strategy may increase. So, in your financial report, you should justify the possible increase in marketing expenses and roughly calculate the ROI of these expenses.
Include scalability possibilities
Apart from taking into consideration unexpected expenses and possible end strategy scenarios, an effective business plan for your coworking space should include growth opportunities as well. If your market analysis and business growth estimates are correct, your brand might open another coworking space within two years after the launch of the first one. You should introduce this idea to your partners, giving them the details of the business growth plan.
What should you take into consideration, when presenting scalability possibilities?
1) Customer Acquisition Cost Analysis
This is the average cost of acquiring a new customer, which is also used to evaluate the effectiveness of marketing and advertising strategies based on how many membership plans you are selling per month or per year. In terms of determining scalability, this analysis, based on the experience you already have, helps predict the expenses on customer acquisition if you decide to open another coworking space.
2) Customer Lifetime Value Analysis
This analysis describes the total profits you receive from a customer. This analysis is used to compare against your customer acquisition cost analysis to determine, whether the money you invest in your marketing and sales strategy has an effective ROI. The results of this analysis help understand, which marketing strategies will be the most profitable if you decide to expand your coworking space services.
3) Market Predictions
Go back to the first point that we discussed in this article and apply all these statistics to the scalability of your business. What will the market look like in the upcoming years? Will the changes in your niche impact the prices for your services?
Do a predictive analysis of your finances for possible business expansion to understand, how much you will need to open a new coworking space if the market changes, and what you will do to help it become profitable.
What else?
Apart from these three steps, you should also do a predictive analysis of the performance of your competitors and what can help remain relevant and stand out from the competition. Also, take into consideration the changes in technology and the opportunities that it can give you to increase the scalability of your business.
These steps can help you roughly evaluate the scalability potential of your coworking space, taking into consideration the current situation in this niche as well as the upcoming possible changes in this industry.
Final Thoughts
Although a coworking space is a tempting business opportunity with great growth potential for the upcoming years, it is rapidly becoming very competitive. Thus, to withstand competition, you need a clear and detailed business plan for your coworking space, that takes into consideration the current state and the upcoming changes in this niche.
So, rely on current estimates as well as on the predictive analysis, do a detailed financial breakdown of all the expenses, and don’t forget to consider the business growth opportunities. Eventually, you will be able to open new coworking spaces, as your brand grows, so include growth opportunities to make your business plan more well-rounded and detailed.
Hopefully, this guide will help you create an effective business plan for a coworking space, with which you will become one of the key players in this rapidly growing industry.
Daniela McVicker is a blogger and a freelance writer who works closely with B2B and B2C businesses providing blog writing, copywriting, and ghostwriting services. Currently, she blogs for Essayguard. When Daniela isn’t writing, she loves to travel, read romance and science fiction, and try new wines.