As many of you know, Flagstone Financial Management recently moved into a new office that we built in Village Gardens, a development in south Lincoln. Many of our business clients have asked about the building process because they are interested in doing the same thing. If you’re in that situation, I hope you can learn from my experience. Or, if you’re a client who is just curious about why we moved and why we decided to build, you’ll find answers to those questions, too. Here are a few considerations we made while we went through the process of finding a location and designing a space, and are factors I think you should consider if you’re considering a new space. I’ll also list some of the drawbacks and lessons we have learned so far.

1: How Do You Want The Space In Your Building To Function?

The primary reason we wanted to build our own building was that we wanted space that would work better with how we operate. I have always liked space where the conference rooms and client interactions happen in an area that is separate from where the work is done. Some would say that is because my desk can get a little “busy,” but we really want to put our best foot forward every time our clients interact with us. To have the “front stage” of our business on display and keep the “back stage” part of the business less visible helps accomplish that goal. We also wanted options in our conference space. Some clients feel intimidated by a big conference table, TV and formal presentation and prefer a laid back, casual meeting space. Accordingly, we built a larger more formal conference room, as well as a more casual “discussion” room.

We also wanted a more collaborative and open space with room to grow and multiple places where employees could work. There are a lot of articles promoting this concept and a lot that seem to bash it as well. We have found that we function much better as a team being out in the open together. We will have some work station walls (with some character as they will be custom made with steel and wood) for some privacy, but during most of our day we are all out in the open and free to discuss or just hear issues going on with clients. This has turned out to be way less distracting and more beneficial in improving client service that even I thought. We do have an office, conference rooms, a couch and an upstairs area where our team can go if they want a different spot to work or need some privacy, which is important with an open concept office design. Our desks also move up and down with a touch of a button which should bring added health benefits to our team. From my perspective, I feel more productive when I can stand for part of the day and that will easily cover the extra costs for the standing desks.

Finally, we wanted a space to reflect our personality. We are a little younger than the typical financial advice firm and we will continue to become more and more tech focused so we can serve our local clients better as well as our clients who live in other states. We currently serve clients in about 20 different states so it is a significant part of our business. I also hate to wear a tie so the slightly more casual industrial/modern vibe we have created fits that style preference.

2. How Quickly Do You Want To Grow Your Business, If At All?

We plan to grow Flagstone over time. We are not sure if that will continue to happen organically or if some like-minded advisors will want to move their businesses under the Flagstone name, but by having some extra space on the main level and finishing the upstairs space (which is much cheaper than main floor space), we have created extra space for growth that is immediately available. If our growth happens organically, which tends to be a little slower, we have ideas for how we will use the upstairs space. For example, we hope to deliver more video content in the future so we will have a space to film that content upstairs. We would also have a good space to conduct community events and perhaps have some workout equipment for employees to use. The options are endless and it is nice to have choices for that space.

Whether building or leasing space, planning for future growth is tricky. I feel like we struck a nice balance between building extra space so we can have flexibility, and not overinvesting in spaces that won’t be used in the near future, but time will tell. I have heard many say that leasing is so much better from a flexibility standpoint, but judging from my experience, I think you might get similar challenges with leasing and if you do need to adjust, you are at the landlord’s mercy in terms of pricing and available space. There is still a good portion of the buildout costs that you pay as a tenant, and instead of paying yourself, you are paying off a building for someone else. I’m happy we leased when we launched Flagstone since there was more uncertainly. We were in a big transition and we found a very efficient space where we didn’t need to make any major adjustments, but building at this time and at this location was the right move for us.

3. What Marketing Benefits Do You Want From Your Building?

In order to meet our growth goals, we felt it would be better to have a more visible and significant presence in the community. The Village Gardens development where we built is a fun, mixed-use development with a lot of traffic, visibility and a bit of a “downtown” feel in south Lincoln. It is hard to say how much name recognition or benefit we will get from our new location, but it will be a big improvement from our previous location.

We also have the ability to hold some smaller client or community events or casual get-togethers in the upstairs space or on the deck on the back of the building, which will hopefully allow us to connect with clients and friends in a different way than we have in the past. This hasn’t been a strength of ours so we hope to get better at this in the future and the new office space should allow us to do so.

4. How Does The Decision Of Rent Versus Buy Affect Your Finances?

In our meetings with clients we spend a lot of time discussing diversification. We are often talking about diversification among the investments we manage and how with the right diversification, you can increase expected returns and lower risk over time. This concept also applies to outside assets. I view real estate as one of those asset classes where you can get the benefits of diversification, while providing some behavioral finance benefits, which I’ll explain later. We are also living in a relatively low interest rate environment which makes real estate investing even more attractive.

We intend to help clients with their investment and financial planning needs for a long time to come. We have great clients; many have accumulated significant investment assets and will continue to do so. So long as we continue to provide great service and advice to those clients, there is a good chance our business will continue to succeed in the future. Accordingly, we have a fairly predictable business that should be able to support the cash flow needs of owning a business in the future. If you’re not in that situation, building a building for your business may not make sense. But in our scenario, the building should be paid off in 15 years or less. After that, the building should provide a good income stream for its owners.

The behavioral finance benefit of owning a building or other direct real estate is that you tend to spend less and save more by owning a building. In our case, this is due to paying off the building loan and paying much of the costs outside of the construction loan (there are more than you would think) with excess cash flow. Making payments towards a loan or paying with cash results in a forced savings of sorts. This helps to keep the rest of your lifestyle from creeping up like it tends to do as you make a little more money over time. This has obvious savings benefits now, but from a financial planning perspective it also means you require a smaller nest egg. Your required nest egg is directly proportional to the amount of money you want to live on in retirement and to fund other goals. In other words, if you spend less now because you are investing or saving more, you will need less of a nest egg in the future.

5. What Challenges Will You Face If You Build A New Office?

I can’t write an article about building a building without discussing the negatives, since there were plenty of challenges along the way. By far the biggest downside of this process has been the time it has taken. This process started almost 18 months ago from concept to design to completion. We still aren’t totally done yet. Some of this could have been prevented, and I learned some lessons about what I would do differently next time (sounds like another blog article), but the time commitment was real. The different ways we spent time on the project are too many to name, but it includes things like the following:

  • reviewing various legal agreements
  • meetings with attorneys, architects, general contractors, bankers, interior designers, etc.
  • overseeing the construction process (you think you hire people to do this, but it isn’t close to that simple)
  • making decisions regarding colors, style, subcontractors to use, furniture, etc.
  • organizing the things you need for a building that are not done in the normal construction process or budget (so plan for spending a lot of extra $ here) like low voltage cable, signage, furniture, wall coverings/art, appliances, IT, movers, etc.

There are also a lot of financial requirements. It takes more money than you initially think and you need to be fairly liquid. Liquidity requires the assets in the first place, and you also have to realize you are probably giving up some return since some of those resources have to sit in low-returning cash or cash-like investments. You could borrow more than we did, but there is still a need for some extra cash or liquidity no matter how you do it.

Despite the negatives indicated above, I don’t regret going through the process since I’m excited about the results and I feel we accomplished the goals that we set out to accomplish. There are a few goals that we will only know if we accomplished them over time, but I’m excited about the future of Flagstone and the building is a part of that future.