Start Your Own Business (41 page)

Location Worksheet

 

Answer the following questions by indicating whether it is a strength (S) or weakness (W) of the potential site as it relates to your business. Once you have completed a worksheet for each prospective location, compare the relative strengths and weaknesses of each site to help you choose the best one for your business.

 

S	W
Is the facility large enough for your business?
Does it meet your layout requirements well?
Does the building need any repairs?
Will you have to make any leasehold improvements?
Do the existing utilities meet your needs, or will you have to do any rewiring or plumbing work? Is ventilation adequate?
Is the facility easily accessible to your potential clients or customers?
Can you find a number of qualified employees in the area in which the facility is located?
Is the facility consistent with the image you would like to maintain?
Is the facility located in a safe neighborhood with a low crime rate?
Are neighboring businesses likely to attract customers who will also patronize your business?
Are there any competitors located close to the facility? If so, can you compete with them successfully?
Can suppliers make deliveries conveniently at this location?
If your business expands in the future, will the facility be able to accommodate this growth?
Are the lease terms and rent favorable?
Is the facility located in an area zoned for your type of business?

 

 

 

AGENT AVENUES

 

U
nless you have a significant amount of experience in shopping for commercial real estate, it’s a good idea to use a qualified real estate agent. Whether you are buying or leasing, an agent can help by prescreening properties, which saves you time, and by negotiating on your behalf, which can save you money.

 

 

Typically the seller or landlord pays the agent’s commission, which may raise some questions in your mind about loyalty of the agent. However, keep in mind that the agent doesn’t get paid until a deal that satisfies you both is negotiated.

 

You may opt to use a tenant’s or buyer’s agent whom you pay yourself. In the real estate world, that’s called tenant (or buyer) representation. Especially in tight market situations, it may be to your advantage to invest in an advocate who will negotiate on your behalf. For more information about tenant representation and for help finding someone to assist you, contact the Society of Industrial and Office Realtors in Washington, DC, at (202) 449-8200 or visit
sior.com
.

 

Shop for a real estate agent as you would any professional service provider: Ask for referrals from friends and associates; interview several agents; be sure the agent you choose has expertise in the type of property or facility you need; check out the agent’s track record, professional history and reputation; clarify how the agent will be compensated and by whom; and draw up a written agreement that outlines your mutual expectations.

SPEAKING THE LANGUAGE

 

F
ollowing are some of the leases you may come across:

•
Flat lease.
The oldest and simplest type of lease, the flat lease sets a single price for a definite period of time. It generally is the best deal for the tenant but is becoming increasingly harder to find. (Caution: Avoid a flat lease if the term is too short; a series of short-term flat leases could cost you more in the long run than a longer-term lease with reasonable escalation clauses.)

•
Step lease.
The step lease attempts to cover the landlord’s expected increases in expenses by increasing the rent on an annual basis over the life of the agreement. The problem with step leases is that they are based on estimates rather than actual costs, and there’s no way for either party to be sure in advance that the proposed increases are fair and equitable.

•
Net lease.
Like a step lease, the net lease increases the rent to cover increases in the landlord’s costs but does so at the time they occur rather than on estimates. This may be more equitable than a step lease, but it’s less predictable.

•
Cost-of-living lease.
Rather than tying rent increases to specific expenses, this type of lease bases increases on the rises in the cost of living. Your rent will go up with general inflation. Of course, the prices for your products and services will also likely rise with inflation, and that should cover your rent increases, so this type of lease can be very appealing.

•
Percentage lease.
This lease lets the landlord benefit from your success. The rent is based on either a minimum amount or a base amount, or a percentage of your business’s gross revenue, whichever is higher. Percentages typically range from 3 to 12 percent. With this type of lease, you’ll be required to periodically furnish proof of gross sales; to do this, you may allow the landlord to examine your books or sales tax records, or provide a copy of the appropriate section of your tax return. Percentage leases are common for retail space.

Business Lease Checklist

 

After you have chosen a particular site, check the following points before you sign the lease:

• Is there sufficient electrical power?

• Are there enough electrical outlets?

• Are there enough parking spaces for customers and employees?

• Is there sufficient lighting? Heating? Air conditioning?

• Do you know how large a sign and what type you can erect?

• Will your city’s building and zoning departments allow your business to operate in the facility?

• Will the landlord allow the alterations that you deem necessary?

• Must you pay for returning the building to its original condition when you move?

• Is there any indication of roof leaks? (A heavy rain could damage goods.)

• Is the cost of burglary insurance high in the area? (This varies tremendously.)

• Can you secure the building at a low cost against the threat of burglary?

• Will the health department approve your business at this location?

• Will the fire department approve your business at this location?

• Have you included a written description of the property?

• Have you attached drawings of the property to the lease document?

• Do you have written guidelines for renewal terms?

• Do you know when your lease payment begins?

• Have you bargained for one to three months of free rent?

• Do you know your date of possession?

• Have you listed the owner’s responsibility for improvements?

• Do you pay the taxes?

• Do you pay the insurance?

• Do you pay the maintenance fees?

• Do you pay the utilities?

• Do you pay the sewage fees?

• Have you asked your landlord for a cap of 5 percent on your rent increase?

• Have you included penalty clauses in case the project is late and you are denied occupancy?

• Have you retained the right to obtain your own bids for signage?

• Can you leave if the center is never more than 70 percent leased?

• Has a real estate attorney reviewed your contract?

“Tonight, when you
lay your head on your
pillow, forget how far
you still have to go.
Look instead at how far
you’ve already come.”

—BOB MOAWAD,
CHAIRMAN AND CEO OF
EDGE LEARNING INSTITUTE