As a commercial real estate agent, I've had the privilege of helping many business owners turn their entrepreneurial dreams into a reality. Having said that, it does not mean it was always smooth sailing. Too many times, I've worked with founders who were unaware of the many nuances associated with leasing commercial space. As a result, in this week's blog post, I wanted to address the most common pitfalls I see business owners make as they start their entrepreneurial journey. Below I've provided the 3 most common:
Thinking the "Base Rent" will be their only expense
The first mistake business owners make is that they assume a property's base rent is the only building expense they will be responsible for paying. Although there are instances where this is the case, it really depends on the lease type. In some lease agreements, such as triple-net, you may be responsible for paying taxes, insurance, and ensuring the property is properly maintained. As an example, if you had a base rent of $1,500 under a triple-net lease, your monthly cash outflow may exceed $2,000! If you're not prepared to meet this financial obligation, you could find yourself in a pinch early on.
Only envisioning the "best case" scenario
The second most common mistake I see business owners make is that they tend to only account for the best-case scenario. They envision a flood of new customers clamoring for their product/services and their business prospering from day one. However, the truth is actually quite sobering. In reality, it usually takes roughly 3-6 months for foot traffic in new retail stores to substantially improve. Because of this, I highly encourage you to have reserves in place of at least six months of expenses prior to opening your doors. This will ensure that you're able to weather the first few months as you build demand for your products and/or services.
Not carefully reviewing the final lease agreement
Last but not least, before you sign your final lease agreement, it's important to scrutinize it rigorously. Probably one of the most important sections to review is the landlord-tenant responsibilities. As you can imagine, building owners want to institute lease terms that heavily favor the landlord. If they can pass along responsibilities, such as maintaining the HVAC system, the roof, etc. they will likely do so. Therefore, if you're not careful and you don't identify these provisions within your lease agreement, you may get stuck in a long-term lease where you are responsible for big-ticket items such as the building's roof, HVAC system, Water Heater etc.
To avoid these common pitfalls, I highly recommend that you seek the services of a competent commercial real estate agent who can help you navigate the commercial leasing process. If you're located in the Louisville area and would like to lease a commercial space, I'd love to help you achieve your real estate goals! Feel free to give me a call at (502) 536-7315, or send me an email raphael@grisantigroup.com. Looking forward to hearing from you!
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