Finding your Business Space
Most traditional businesses logistically require a physical store or office to operate out of. A challenge for new entrepreneurs lies in the difficulty of finding that home away from home in the first place. Maybe you were lucky, and you stumbled upon a vacant space in your community that you love. If that wasn’t the case for you, however, you may not know where to begin when it comes to locking down your dream business space. This section aims to help clear up some of that confusion.
Buying vs. Leasing
Many people see the debate between buying and leasing simply as a debate between long-term and short-term savings. Here’s the thing: for all intents and purposes, they aren’t wrong. Small business blog Fit Small Business crunched the numbers and concluded that, generally, if you plan on staying open in one location for more than seven years, you should consider purchasing your property rather than leasing it. Seven years appears to be the break-even point between the two options. That may be a handy rule of thumb, but you may also want to consider a more nuanced table of the pros and cons before making a decision as large as this one.
Below is a more nuanced table of the pros and cons of buying and leasing commercial property.
|Pros||• You secure a location that you may love|
• Increasing property value may provide additional income upon resale
• No more dealing with landlords
• Monthly mortgage payments are commonly cheaper than monthly rent
• You can freely improve the space
• You can host tenants of your own for additional income
|• Much cheaper up front; easier to commit if you don’t have much cash to spend
• Good for a business with rapidly changing needs; easier to move locations
• Less of a hassle than ownership; you can focus solely on running your business
|Cons||• Rising interest rates may make a floating/variable interest rate mortgage very costly|
• Buying a building is a huge commitment in time, money, and energy
• You’ll be responsible for any defects and outstanding costs tied to the building
|• Your landlord may refuse to renew your lease
• You’ll be restricted in the improvements you are able to make to your building
• You may not get guaranteed parking spots
• Lease payments are commonly higher than monthly mortgage payments
Resources for Business Space Finding
So how do you go about looking for a property to lease or purchase? A great way to start is to check out the various free websites that allow you to browse available properties in your area. Be sure to look through multiple sites if you do this, as one site may not catch all of the actual opportunities available to you. Below is a list of some of these sites.
Signing your Lease
This section aims to cover the point in time between finding the property you wish to lease, and signing the lease agreement with your future landlord. Lease agreements can be pretty difficult to read and fully grasp, but it’s vital that you know exactly what you’re getting into when you sign one. The fate of your business could rest in the terms of your lease. If possible, even consider the help of business professionals in going over your agreement and advising you of any potential shortfalls.
When you discuss the terms of your lease, you should be prepared for some heavy negotiation; it’s not expected that you agree to all of your landlord’s terms right away. If you and your landlord end up agreeing to any changes, be sure to get them in writing, and document them for later use if necessary. This is because verbal agreements have a tendency to disappear when you need them the most.
Remember also that, while rent is an important portion of your agreement, it doesn’t immediately hold priority over everything else. If your landlord wants more rent than you expected, don’t let that make you give up, for example, a prime location with lots of foot traffic.
Lastly, in any negotiation, you have to be prepared to completely walk away from the deal if necessary. Landlords notice people who aren’t comfortable with walking away, and will take financial advantage of those people to make a larger profit for themselves. While you may think that you’ve found your dream space, hostile lease conditions simply aren’t worth the hassle. Remember that there are always alternatives.
Important Terms to Understand
While lease agreements don’t follow a single, set template, there are common sections that run between most of them. The following is a list of some of these common terms and what they mean.
- Term – Essentially, it’s how long your lease lasts. Terms can last anywhere between a few months and 5+ years, depending on the situation. If you plan on staying past the lease’s term, the lease must be renewed. In that time, sections of the lease can be changed and negotiated once again. Your landlord even has the right to refuse a renewal, leaving you without a space to do business.
- Rent – how much you’ll be paying your landlord to use their space. Commercial rents are commonly based on the square footage (SF) of the space. Depending on the type of lease you sign, what you’ll actually be paying for will vary.
- Percentage rent lease – common for retail businesses, you’ll be paying a base rent, along with a percentage based on your sales.
- Gross rent lease – You’ll just pay a flat rate for rent and other, specific expenses, while your landlord covers the rest of the operating costs.
- Net lease – You’ll pay some of the property taxes along with the base rent.
- Double net lease – You’ll pay the base rent, taxes, and insurance costs.
- Triple net lease – You’ll pay the base rent, taxes, and any operating and maintenance costs.
- Space and Services – This outlines what you’ll actually be receiving upon signing your lease. You’ll want to make sure that the square footage outlined in the lease actually matches up to the space you expect to receive. Also, you’ll want to know who is handling the tasks necessary to keep your physical store, safe, clean, and convenient. Who takes care of any outdoor landscaping? Will any common spaces be cleaned? Who handles any needed repairs?
- Leasehold improvements – Because you won’t own the building, your ability to make any improvements to it for the well-being of your business could vary. If you can make improvements, will they be your assets? Will they be the property of your landlord when you leave? In leaving, you should also know what you can take with you and what you can’t.
- Escape clause – In the event that you are no longer able to run your business, what happens? Are you trapped in your lease, or will you be allowed to end it early?
Once again, leases can get terribly complicated. It’s recommended that you get help from trained professionals in order to get the most out of your lease agreement, and to understand what exactly you’re getting into.