Selecting a business location is perhaps the most important decision a small business owner or startup will make, so it requires precise planning and research. It involves looking at demographics, assessing your supply chain, scoping the competition, staying on budget, understanding state laws and taxes, and much more. Here are some tips to help you select the best business location.
Determine Your Needs
Most businesses choose a location that provides exposure to customers. Additionally, there are less obvious factors and needs to consider, for example:
Brand Image – Is the location consistent with the image you want to maintain?
Know Your Market – Is the location easily accessible to your customers?
Competition – Are the businesses around you complementary or competing?
Local Labor Market – Does the area have potential employees? What will their commute be like?
Plan for Future Growth – If you anticipate further growth, look for a building that has extra space should you need it.
Proximity to Suppliers – They need to be able to find you easily as well.
Safety – Consider the crime rate. Will employees feel safe alone in the building or walking to their vehicles?
Renting Commercial Space
Renting commercial office space is one of the largest expenses incurred by new and expanding businesses, so it is important to do your due diligence. Here are some tips for negotiating a commercial rent for your small business.
Rent Agreement
Rent term and rent are your first negotiation points. It is generally recommended that small businesses negotiate one- to two-year rents with the option to renew. You will also want to factor in rent increases over the term and renewal options so you are not charged with an unexpected rent increase without warning.
Consider working with a broker to help you negotiate with the landlord. It is also important to consult a knowledgeable real estate lawyer; they can often recommend the right choice for you and protect your interests as you negotiate your rent through the broker.
Expenses
In addition to your monthly rent payment, find out what expenses you may incur beyond rent.
Commercial real estate landlords often incorporate extra expenses into the rent such as maintenance fees, upkeep for shared facilities (Common Area Maintenance or CAM), etc. Other expenses to consider are utilities. These charges are usually the responsibility of the tenant, so find out how these are measured. Are they individually metered or apportioned by square footage? Ask to see these “hidden fees” and policies as well as examples of costs that are typically incurred by tenants.
Maintenance and Repair
While residential renting often places the burden of maintenance and upkeep on the shoulders of the landlord, commercial rents are different. Commercial rents vary regarding maintenance and repair – some stipulate that the tenant is responsible for all property upkeep and repairs while others specify that the tenant is responsible for systems like air conditioning, plumbing, etc.
Read the Rent Agreement
Be sure to read over your rent in detail and hire an attorney who specializes in commercial real estate to walk you through the clauses and fine print.
Protect Your Business
To protect your investment and long-term business interests, it is worth investigating and negotiating some potential add-on clauses to your rent. These might include:
Subrent – This builds in some flexibility, allowing you to sublet your space to another business.
Exclusivity clause – Prevents the landlord from renting other spaces on the property to a direct competitor of yours.
Co-tenancy – If the property’s anchor tenant closes business, a co-tenancy agreement can protect you from a potential loss of customers, allowing you to break the rent if the landlord does not replace the anchor tenant in a specified time period.