Tenants - Looking to Lease

FACTORS FAVORING LEASING

  • Cash flow. A business can conserve its cash flow by leasing. Under a lease, the initial cash expense for the facility will be a month's rent and a security deposit.
  • Credit rating. The company has not established a credit rating sufficient to support a mortgage.
  • Maintenance. The landlord is responsible for maintaining the property.
  • Property. You have been unable to find a suitable property that is for sale.
  • Real estate values. The facility you've found meets the needs of the business but is located in an area where property values are declining.
  • Mobility. You're not sure that the facility will meet the future needs of the business.
  • Tax Savings. Rent is deductible as a business expense.

Choosing a Successful Location for Your Business

Here's how to choose affordable space for your business that suits your company's needs.

Because there's no universal rule for choosing a good business location, it is important for every business owner to figure out how location will (or won't) contribute to the success of the business -- and to choose a spot accordingly. While there are many issues to consider when you are looking for space to house your business, make sure you ask yourself these four important questions whether you are looking for office space, retail, industrial space, lifescience, biotech, or high-tech commercial space:



Is Location Important for the Success of Your Business?

For some businesses, the classic advice "location, location, location" is right on the mark -- location can mean the difference between feast or famine. But for other enterprises, location may be much less important than finding affordable rental space. In fact, location is almost irrelevant for some businesses: service businesses that do all their work at their customers' locations (such as roofers and plumbers) and businesses that have little contact with the public (such as mail-order companies, Internet-based businesses and wholesalers). If these types of companies can pass on rent savings to their customers, picking a low-cost spot in an out-of-the-way area might be an advantage.


What Type of Location Is Best for Your Business?

The key to picking a profitable location is determining the factors that will increase customer volume for your business. Ask yourself questions such as:

  • Will customers come on foot?
  • Will customers drive and, if so, where will they park?
  • Will more customers come if you locate near other similar businesses?
  • Will the reputation of the neighborhood or even of a particular building help draw customers?

Keep in mind that different types of businesses attract customers in different ways. One key distinction is foot traffic versus automobile traffic. For example, if you are opening an urban coffee shop, you may assume your customer volume will be highest if there is lots of pedestrian traffic nearby during the hours you plan to be open. On the other hand, for an auto repair shop, the choicest locale is a well-traveled street where the shop will be seen by many drivers who can easily pull into the lot.

Also consider whether it would benefit your business to be around similar businesses that are already drawing the type of customers that you want. A women's clothing store, for example, would no doubt profit from being near other clothing shops, since many people shopping for clothes tend to spend at least a few hours in a particular area.

Ultimately, the perfect location for any business is a very individual matter. Spend some time figuring out the habits of the customers you want to attract, and then choose a location that fits.


How Much Rent Can You Afford?

Chances are that you will rent rather than buy a space for your business. After all, most small start-ups do not have the funds to purchase real estate, and it is usually not a good idea to saddle your business with high interest payments in any case.

One obvious and important concern when looking for commercial space to lease is finding a place that you can afford. When you projected your financials (as part of your business plan), you should have estimated how much rent your business would be financially able to pay each month, given its projected revenues and its other expenses.

If you have not already, research average rental costs in your area to make sure the amount you budgeted for rent in your business plan makes sense given the cost of commercial space in your area and how important location is for your business. For example, if you determined that location is very important to your business, make sure your budget will allow you to rent good space given the average cost of space in your area. If not, you may have to rework your business plan.


Is Your Proposed Location Appropriate for What You Plan to Do There?

When choosing business space, the biggest consideration is sometimes not where it is but what it is. The building facilities need to be appropriate for (or adaptable to) your business. For example, if you are planning to open a coffeehouse, you need a place with at least minimal kitchen facilities. Unless you can convince the landlord to put in the needed equipment -- plumbing, electrical work and the rest -- it is highly unlikely that laying out the cash to do it yourself will be worth it. In short, if a building lacks something major that is essential to your business operation, you should probably look for something else.

Communications Wiring

Another consideration that is important for many businesses these days is having modern phone and other data lines into the business. When you are considering a specific space, ask the agent or the landlord for information about communications wiring, such as whether the space is connected to a fiber optic network or is wired for DSL or a T1 line (high-volume Internet connections). Also, find out to whom the landlord has sold the rights to the risers (wire conduits) in the building. A commercial landlord cannot enter into exclusive contracts with a single telecommunications provider such as MCI or AT&T. However, to bring in another provider of your choosing could be expensive.

Electricity and Air Conditioning

Besides high-tech communications wiring, do not overlook plain-old electrical power as an important consideration in choosing a business space. Make sure that any space you are looking at has enough power for your needs, both in terms of the number of outlets in your space and the capacity of the circuits. If you will be running machinery or other electricity-hungry equipment, make sure to find out from the landlord how much juice the circuits can handle and whether a generator is available during power outages. Also, if you keep sensitive computer equipment at your office, ask the landlord how many hours of air conditioning are included in the terms of your lease, and negotiate longer hours if necessary.

Parking

Another common need for many businesses is adequate parking. If a significant percentage of your customers will come by car and there is not enough parking at your chosen spot, it is probably best to look elsewhere. In fact, the city planning or zoning board might not allow you to operate in a space that does not have adequate parking.

Zoning Rules

Finally, the location that you choose needs to be legally acceptable for whatever you plan to do there. A certain spot may be good for business, but if it is not zoned for what you plan to do, you will have a problem.

You should never sign a lease without being sure you will be permitted to operate your business in that space. Your city planning or zoning board determines what activities are permissible in a given location. If your zoning board has a problem with any of your business activities, and it is not willing to work out a way to accommodate your business, you may have to find another space.