Friday, May 23, 2014

Space cost, landlord

     Free daily tips, information and advice for people in small business
     from someone who has been there, done that in several small businesses.

     The first time you lease space for your business, you can negotiate from strength. Toward the end of that first lease, you will be negotiating from weakness.

     We are talking leasing space for small businesses here--not bigger companies. Big operations are slow to move, small operations are fleet of foot. What this means is critical to the process of renting space. Landlords know that small businesses can leave at the end of a lease with relative ease, whereas a bigger company finds it harder. 

     The aim of the small business in the first lease is to get the longest term at the lowest cost. Landlords typically throw in sweeteners upfront to entice you--they offer to fix the door, upgrade the restroom, maybe move an internal wall you don't want.

     But keep your eye on low cost and long term. You can assume that the landlord will up the cost when you go to extend or renew the lease. You'll get your best deal upfront. When you go to extend your lease, the base line has already been set.

     Before signing anything, now or later, you deserve to check out rents being charged elsewhere for comparable space. This can be difficult because other business owners are reluctant to divulge such information. Real estate agents have this information.

     A chamber of commerce or other business organization in your area can be helpful in gathering this information. Also, check out other locations in other areas. You might run up on a better location at the same or lower cost than where you are. 

     Some landlords oversell themselves on the value of the space they have for rent. They begin to think that the town or neighborhood is on the rise economically, and they begin to lead the way by offering space at higher and higher rents. This thinking on their part can lead to their asking unreasonably high rents, losing tenants, and contributing to economic downturns locally. 

     Landlords might think that once you move your business into their space, you won't leave. Sometimes, it's true. Think about the costs of moving a spa with all that special plumbing. Think about a machine shop or a printing operation with all it's heavy equipment. On the other hand, law offices and accounting operations can pack up in a briefcase and move to another location. 

     Always try to make your lease coincide with your plans. Your business plan is very important here. A florist might be planning to expand into greenhouse operations in five years. Negotiating a five year lease on town space now can coincide with expansion into the greenhouse--at another location--in the same five years. 

     Also, if the space you're considering is larger than you need, try to negotiate for a smaller space with an "expansion" clause downstream in say, a year or two. Many landlords will not consider such a proposition, but in tight economies, they might. You can save a substantial amount of rental cost this way, and the landlord has a "sure thing" in the lease for renting you more space in the future. It can be a "win-win" situation. 

     See yesterday's blog, where size and location were covered.

     Questions? I retired when I turned 75. Today I write and garden. You can email me your questions at Put BLOG in the subject line so I don't delete. Quick answers from my 40+ years of personal experience in founding and running small operations. Your privacy is always respected. 

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