Let’s look at some of the things that must be done or considered before signing a lease or offer to purchase.
Have you formed a legal entity for your business?
Leases and contracts should be done in your business’ legal name. The business is the tenant or purchaser, not you as an individual. You may still be required to sign a personal guarantee if this is a new business, but all business transactions should flow through the legal entity you have created.
Is your business allowed under the current zoning?
We talk to our clients about this all of the time, and here it is in writing from the city of Savannah:
“Prior to leasing, purchasing, or otherwise committing to a property you are Strongly Advised to confirm that the zoning and physical layout of the building and site are appropriate for the business use intended and will comply with the City of Savannah’s Zoning Ordinance. This includes having a clear understanding of any code restrictions, limitations or architectural guidelines that may impact your operation and any building and site modifications that may be necessary to open your business.”
Who are your customers?
This should come directly from your marketing plan. You should be able to identify the customers who are most likely to need, want or benefit from your product or service.
This can help you quantify how much you need to pay for rent or for a building or piece of property. If you need to be in a high traffic location, expect to pay more. If you don’t depend on drive-by or foot traffic for your business, you can likely find a much more affordable location.
Real estate developers go through a process called site selection, and so should you. Once you have defined your customers by segments such as income, age, consumer or business, lifestyle or other factors, you can begin to do research on your preferred location to see if it matches your customers.
Research the demographics of your trade area in a one-, three- or five-mile radius depending on your reach to see if you have a match. For example, sandwiches that cost $12 or dresses that cost $250 will probably not work in a location that has a median household income of $25,000.
Consider the condition of the space or building. Build out or up fitting can be one of the biggest business expenses you will face. If it is anything beyond cosmetic, you will need to hire a licensed professional and make sure that you have the proper permits.
Get quotes before committing to the space or making an offer to purchase. In some cases, these costs might make a location cost prohibitive.
If you are signing a lease, make sure you understand everything you will be required to pay. What does your price per square foot include? If you are signing a triple net lease, you may also be required to pay common area maintenance fees in addition to taxes and insurance on your pro rata share of the property.
Please have your business or real estate attorney review any legal contracts such as leases or offers to purchase before committing yourself and your business.
Becky Brownlee is a business consultant with the Small Business Development Center and can be reached at firstname.lastname@example.org.