Coffee with Glen, CEO of Brazzlebox
Today’s blog is hitting the site later in the day than normal – so instead of coffee let’s have an iced tea!
One of the biggest challenges a brick and mortar small business can face is paying the monthly lease. You can build a profitable business plan, fix the building up really nice and stock the store with product but it never means you can get enough business to cover all of your monthly expenses.
So you have to negotiate the lease deal that will work best for you and be cautious of the personal guarantee.
I was involved in a terrible deal on one of my leases where the landlord was 250 miles away, the economy was slowing, product prices were expensive and the monthly payment was way too high. Looking back it is easy to see that the space was just too large for what was needed and not enough product was ordered timely to fill the space. With the landlord being so far away they had no intimate connection to the space and not being from the community they had no concern that business was slow, they just wanted their money (fair enough). Plus the leasing agent indicated that the previous lessee reached a certain revenue amount in a fixed time period when in fact we found out that is was not even half of that amount. All of the above points simply mean you have to be smart when selecting your location and figuring out a monthly payment you can afford.
The Personal Guarantee – This means that if you go out of business you still guarantee the lease personally and are personally liable for the entire lease (this is total crap). If you have to do this, negotiate it to as few years as possible. I have seen store owners guarantee a 10 year lease and not even make it 2 years, so that is 8 years the landlord will come after and yes, they will come after it.
Percentage of sales monthly payment versus a dollar per square foot monthly payment – If you can negotiate a percentage of sales monthly payment that may work better. Yes you pay more in the busy months but during slow periods you can still make a payment and have enough to live on and buy product. Ask your attorney if this may be the way to go – you are already paying her a lot of money so ask.
If the numbers do not work then walk away and find something else – Remember that leasing agents get paid for leasing out the space, whether you make it or not is rarely a concern for them.
We are led to believe that location is everything and that if you get that premium spot business will be booming. That premium spot also comes with a premium price. What we sometimes forget is that there are situations that occur that we have no control over and these are usually not written into the business plan. So even in the right location at the wrong time can cause a business to fail.
Just protect yourself by being smart with your lease negotiation and get opinions from other businesses in the area. What are they paying? This can help you when you are ready to make your deal.
I am going to interview some leasing agents to give you more information on this topic. I just wanted to share with you one of my stories and some basics if you are considering leasing a spot.
Have a great day!