The 8 Must-Do’s when Leasing Space for your Small Business
You’re on the hunt for the perfect space for your small business. Dreaming of clean, white walls and natural lighting, with wide open office space? Or maybe you’re going for a cozy vibe with rustic ceilings and distressed floors for your new clothing brand?
We know it’s all about the aesthetic these days, and we aren’t here to deter you! Dream big, creatives! But there are a lot of important things to know when searching for the perfect space, and…we’re accountants.
So we’re here to talk money.
Whether you are on the search for an intimate little office or a large building to house you and your 75 employees, you’ll still need to check all the important boxes before signing the lease on your new “home.” So keep reading, as we cover the top eight things to consider when leasing space for your small business.
1. Understand upfront costs
This is number one because it’s a whopper. It would all be rainbows and butterflies if you only had to worry about monthly rent—but your monthly rate might not look so affordable when you combine additional costs.
A few things to consider:
Security deposit: This is usually going to include 1-6 month’s rent. Be prepared to show a balance sheet or bank statement to back up your financial claims.
Attorney fees: Don’t sign a lease without having it reviewed by an attorney first.
Parking rates: Depending on location, you may have to sign a contract with a nearby parking garage.
Liability insurance: Select a policy that allows you to operate in an office space before you move in!
2. Calculate how much space you really need
Early on in your hunt for new space, you’ll need to provide your realtor with an estimate for space requirements. This can be tough if you don’t know what your business could look like a year from now.
Estimates range anywhere from 100-250 square feet per person, so try to plan for the now while leaving space for the future.
Things to consider: anticipated future hires, max occupancy rates, and space shapes (rectangular spaces are much more flexible than a star shaped office…though much less cool.)
3. Plan for growth
This may seem obvious, but someone needs to say it. Growth is essential if you plan on taking on new expenses.
You might be saying, “We plan on driving more website traffic to increase sales!” But how are you going to do that? Maybe you’ll run more social media ads or hire a man in a chicken suit to twirl a giant sign on the street corner.
Whatever your vibe is, get a crystal-clear plan for growth before you sign that lease. It’s not a bad idea to create some hype around your grand opening, but with these marketing strategies come additional expenses.
4. Know what you can afford
Ask your accountant to review your numbers and give you an idea of what they think you can afford. They can also help you make a financial plan for your big move.
Got your eyes set on the perfect space, but it’s out of budget? There will always be another space that can fit your needs; be patient and don’t rush into anything you’ll regret.
Location also plays a giant role in how much your retail or office space will cost you. But a great location could be more lucrative in the long run 一 which could also make higher rent worth it.
5. Estimate utilities
Are you operating a small clothing boutique that might need 24/7 display lighting? Or do you need to budget gas and water to run the busy kitchen of a popular restaurant?
Think ahead about utility expenses that won’t be included within your base rate.
Lighting, electrical, heating, air, gas, and water bills are all dependent on the size and location of your space. Do a little digging and ask for a ballpark estimate of what these expenses might look like.
6. Negotiate tenant improvements
This is a great perk you’ll want to take advantage of if you can. By negotiating a TIA, or a tenant improvement allowance, you’ll get to fix up your space on the landlord’s dime.
Let’s say you negotiate $15.00 per square foot of space on your newly-leased 4,000 square foot office space. This means you’ve negotiated $60,000 towards build-out and improvement expenses!
The only catch here is that you’ll have to foot the bills upfront, and then offer receipts for proof of completion before the landlord is willing to reimburse you for this work.
7. Know your lease structure
In other words, if you’re looking to sign an NNN lease structure, you’re also agreeing to the non-negotiable tax rates and property insurance for that space 一 so do your homework.
The larger and more coveted the space, the more likely these rates will be high.
While not all leases are NNN, it is definitely the most common; it’s a good reminder for small business owners to fully grasp what the tenants are responsible for before signing their life away on the dotted line.
8. Budget for FF&E
FF&E is a fancy abbreviation for furniture, fixtures, and equipment.
This is our friendly reminder that while planning to sign a new lease, you should budget ahead of time for the frills. This budget can vary dramatically depending on the type of business you’re operating.
FF&E includes desks, chairs, computers, display racks, shelves, kitchen equipment, light fixtures, ovens/stoves, and whatever else you may need. It’s vital to budget these ahead of time since they’ll most likely be needed to open your doors!
Are you really ready to sign that lease?
We know that finding the perfect retail/office space to suit your needs can feel like finding a needle in a haystack, and smart financial planning is essential to locating a space of your dreams that you can actually afford.
Whether you’re looking for a shiny new space now, or planning to expand in the future, KYN is eager to help you plan for a bright future. For consultation on all financial matters relating to your growing small business, contact KYN Accounting today.
Got any questions on how to start your office space search? Drop them below!