A third mistake entrepreneurs make is falling in love with a particular location. “That historic Victorian is great. It will be the perfect frame for my antique clothing business.”
Looking at the space itself, what will it take to make the improvements you would need? Does the building need repairs? Is it up to code? Is the existing lighting, heating and cooling sufficient or will you need electrical or plumbing work? Is the ventilation adequate for your needs? How much will it cost to ready the location for your business?
Money spent to prepare the property is money you won’t have to run your business. Set a budget for yourself, before you start looking, and stick with it. If the estimated improvements to the property exceed your budget, keep looking.
If you are opening a restaurant, was the location a restaurant previously? If not, consider how much more money it will take to retro fit a location that does not have kitchen facilities. Restaurants have very specific expensive requirements. The extra cost for plumbing, electrical and HVAC could cripple a business in the long term, taking money that would otherwise be used for employee salaries, additional inventory or monthly expenses like rent and advertising.
Will the landlord bear some portion of the improvements? As an example, if you are required to put in ADA compliant ramps or curbs, see if the landlord will pay for these improvements, as they are permanent improvements that bring the property up to code. If there is a problem with the roof, talk to the landlord about repairing it or if you fix it, rebating the amount through your rent/lease payments as the repair adds to the value of the building, which benefits the landlord in the long term.
Another critical aspect for some businesses is the telecom environment. If you plan to offer Wi-Fi to your customers, you need to be sure the location you are looking at can support it. If you need fast internet speeds you should identify the provider for the location and find out if the location can provide the connectivity you are looking for. Is the building DSL, dial-up, fiber or T-1? The answer leads to very different outcomes for cost and service.
Other things you need to consider are; permits, licenses, zoning requirements, use permits and local planning board approvals. You will need an architect to draw up the plans for the improvements you want to make. Does the zoning of the location permit the type of business you want to open? You may need to pass inspections from various city, county or state agencies. Many of these inspections have fees attached to them. These things add to your startup costs and could add thousands of dollars to the cost of launching your business.
Once you are happy with the location it’s time to tackle the lease. Talk to a real estate lawyer or a business lawyer and have them review your lease. They will be able to tell you what is common language for a lease and what could be unusual and cause you problems in the future. They can also help you negotiate the terms. But make sure you personally read and understand your lease. It is a long term commitment that is hard to unwind.
The fourth mistake is signing a lease before you have your funding in place. If you are requesting funding from a bank, they will want to approve your location before they give you the loan. If they are not happy with your choice, you won’t get the loan. If you have to break the lease, you won’t get your deposit back and you will be responsible for paying the rent on the location until they can find another tenant. This could cost you thousands of dollars you weren’t planning to spend. If you must sign the lease, because you fear you will lose the location, have a funding contingency clause (talk to your business advisor). This way if you don’t get your money, you are not committed to the location.
The final mistake we are going to mention is starting your improvements before you get your funding. If a portion of the money you are borrowing has been allocated for your tenant improvements wait until you have the money in-hand before you start the improvements.
If the bank turns down your loan request, you will have to start the process over with another lending institution, which will take another 45 – 60 days. Meanwhile, you could run out of money and the improvements will have to stop. All contractors require progress payments. If you come up short, your improvements will too.
Many entrepreneurs start using their credit cards when they run out of money. (“Once I get the loan, I can pay them off”.) Maybe, but now you are adding personal debt, and your credit profile will not look as attractive to the lender. Now you are in the worst possible situation, you have started your improvements and you are no longer creditworthy. Don’t let this be you!
Many landlords are requesting business plans prior to leasing a space. They want to be assured you have a plan for making your business successful. Remember, the landlord is a business owner too. It doesn’t help them if you are only open for six months and then go out of business.
If you need a business plan to secure a location or to get bank or investor funding, give us a call. Since we opened in 2004, we have written over 500 business plans, for startups and expansions. Whether you are a serial entrepreneur or a freshly minted one, we will write a custom plan for you. Our plans have secured innumerable locations and over $130 million in funding. You can get more information at www.custombps.com.
Let us help you secure your location and your funding. Call Custom Business Planning and Solutions at 800-741-8444 today. We are the entrepreneur’s choice.
Dispatches From The Front 