A Good Deal on a Bad Location is a Bad Deal

Of the many choices a business owner must make, aside from good hiring practices, the location of his business can be paramount to success.  Consider opening a high-end gift store for pets in an area that inhabits primarily low-income families.  Your landlord boasts of low rent which matches your business plan, but may contribute to a poor bottom line performance because the demographic and psychographic makeup of your customer base may not frequent your store.

Landlords typically offer Lease Agreements that are unilateral in nature and protect their interest at every step.  An entrepreneur, who is truly excited about the opportunity to start his business, often overlooks the small print of a Lease which can be devastating.  In order to secure an Agreement that is in the best interests of both parties to the Lease, it is advisable for a business owner to secure the services of a commercial real estate broker who lives in the area and is experienced with negotiating Lease Agreements.  This may preclude your wife’s best friend’s husband who says he is in commercial real estate.  Leasing or buying a property for your business can be complicated, long-term, and expensive.  BE SURE you carefully vet the broker/representative!

In my travels both in the US and in foreign countries, I marvel at the number of “Available” or “Going out of Business” signs that permeate the landscape of every community.  When I meet with clients who are struggling, they usually blame the economy; difficult employees; lack of capital; politics, and other factors as their nemesis.  In some instances, those excuses do have an impact on the performance; however, I seldom hear the owner proclaim that his rent is taking up too much of the overhead.  In fact, many big-box stores today are learning the hard way that location and housing costs are essential in the sales process.  Consider ACE Hardware who recently announced their efforts to cut the size of their space and move closer to their customer base near neighborhoods they serve.  Other examples include Best Buy, JC Penney and the “former” Circuit City.  Even though the economy may have impacted these companies, there are a number of their competitors who are thriving.   

I once had a client who signed a good-faith Agreement for a space that had an older HVAC unit.  The Lease started in the summer months and the Air Conditioning Unit worked very well.  Unfortunately, the Owner did not ask for information regarding the HVAC and assumed it was fine since the AC worked.  As colder weather approached, the need for heat was apparent but when the staff turned on the heat for the first time, there was none available.  Upon further review, it was learned that the heating unit had been disconnected during the lease term of the previous tenant.  The forecast for the next day was a high of 30 degrees.  The Lease indicated that the Owner was responsible for the HVAC maintenance so the owner had to pay for repairs to get the heating unit to work.  It was too late to negotiate.  To make matters worse, the HVAC had to be replaced several months later and guess who had to pay for the replacement?

 

For a list of other “lease deal breakers”, or “Lease concerns”, write me at gmoore@ceofocus.com.  Provide me with your name and pertinent contact information along with the type of business you are planning to open or are currently operating.  Your relationship with the Landlord is very important and it begins with a Lease Agreement that is mutually beneficial.

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