Do you run a business with a retail, warehouse, or office location? Are you thinking of moving to expand or downsize?
Before you dive right in and sign on the dotted lines, be sure you’re not making one of these common leasing mistakes.
Leasing Mistake #1: Going with the cheapest option
There’s always a reason why rents are not the same—some locations are better than others. The markets are relatively efficient when determining the appropriate rental rates for locations. One of the worst and easiest mistakes that new business owners make is often just going with the site that has the cheapest rent. They then open for business, and it’s crickets. You pay for what you get. However, that doesn’t mean the most expensive locations are the best either.
Leasing Mistake #2: Going with a location that is TOO expensive
Yes, the opposite is a mistake too. Going with a location that is too expensive (often when a business owner wants to get in on the hottest or trendiest new spot in town) and that depletes your cash reserves BEFORE your business has enough time to ramp up and grow its sales will also lead to failure. The key is to find a location that has the traffic your business needs but has rents that it could even afford while you grow your sales.
Leasing Mistake #3: Getting in stuck in a bad lease
The lease agreement is much more than just deciding how much rent you pay and how long you’re stuck with the lease. It can include lots of provisions and rules about what you can and cannot do as a business on that particular property. So many entrepreneurs sign new lease contracts without realizing they’re getting stuck with restrictions that could seriously (or fatally) affect their business. Imagine signing a lease to open a neighborhood bar only to discover the property requires all businesses
Leasing Mistake #4: Location doesn’t work with your life
Some business owners can find an excellent location for their business but it’s a location that just doesn’t work for their personal lives. Most small businesses that succeed require an active owner operator, especially during its early years. So it’s important also to make sure, especially if you’re planning on being a busy business owner, that it’s a location that works for not only your business but also you. Imagine making a 2-hour commute twice daily to your business…not fun, not practical, not set up for success.
Leasing Mistake #5: Choosing a location BEFORE knowing who your customers are
You know the saying: Don’t put the horse before the cart. If you don’t have a crystal clear idea of who your target customers are, you’re searching blind. If you don’t know who your customers are, their patterns, and how and where they spend their time in this market, you won’t be able to identify the best location for your business
Leasing Mistake #6: Not considering all relevant location and property issues
Even if the locations are right next to each other, they will present significant differences for your business. Their visibility from the street, access to parking, signage, layout, orientation, curb appeal, etc., could be different. Business owners often make only look only at the easy to compare items like the rental rate when choosing between locations when in reality, each location will require you to accept different tradeoffs. It’s about identifying all of the features that are relevant for your business and then comparing the locations based on those features that extend well beyond what’s in the lease agreement.
Leasing Mistake #7: Narrowing the search area too early or arbitrarily
After the search area is determined, business owners are often tempted to eliminate large chunks of geography to accelerate the process. Often, they write off whole states or counties that, with some analytical consideration, could have been favorable alternatives. You can avoid this mistake first identifying what your business needs in a location in terms of items like local demographics, traffic levels, access to public transport, taxes, and utilities. Do not eliminate entire markets based on averages. Even markets with borderline characteristics may have perfect pockets within them that best suits your business. If a broader market could be a potential fit, it’s best to do a more thorough, in-person field assessment to start looking for the best neighborhoods or blocks within those markets. The best location in a good market can beat an average location in a great market.
Leasing Mistake #8: Not considering local market trends
Small businesses that rely on local customers for success will need to have a firm grasp on major local market factors that affect the residents. Is a major employer in a struggling or dying industry? If they follow the industry norm of closing offices, what would happen to local businesses? Looking at near and long term forecasts for employment and demographic trends can help you understand whether your business will be facing an uphill battle in the future. Generally, you want to find markets that continue to attract more residents, jobs, or both. Markets that lose one or both will struggle economically.
Leasing Mistake #9: Not negotiating the terms of the lease agreement
There is no such thing as a standard commercial lease. All leases are negotiable. However, what usually happens? The business owner receives a lease contract from the landlord and accepts it as is. True, in some circumstances where the landlord has all of the leverage due to having a highly sought after location and many suitors, negotiations are not always possible. However, in most cases, negotiations will result in some concessions or incentives, even if minor.
Leasing Mistake #10: Not doing a thorough in-person field study of the location
Many locations will sound great on paper—in a great neighborhood with excellent demographics and traffic. However, until and unless you GO there and experience the site and the surrounding areas, during different parts of the week and day, you won’t know the nuances of the site and the area, things that could change your mind about the location. It has to pass your gut check.
Which mistakes do you want to avoid at all costs?
Which mistakes have you made in the past and what did you learn from it?
Tell me below!