Whether you need to lease commercial office space or retail space, it’s important to take the decision seriously. If you’re like most start-ups, your rental space will be a significant investment – both in up-front deposit costs and in monthly commitments. So before you rent that space, consider these six factors:
1. Location, location, location
Obviously, location is particularly important for retail businesses. The closer you are to your customers, the more business you’re likely to get. But location is important even if you’re renting office space and will rarely see customers in your own office.
Think about your employees or potential employees, for example. A luxurious office in a less-than-desirable part of downtown might turn off otherwise excellent employment candidates. And, of course, your own commute to your office is important to consider, if possible.
2. How much space you really need
Too many small business owners with big dreams end up in an overly-large office or retail space. Take some time to carefully consider how much space your business actually needs, and don’t get any more than that.
Also, think about what you may be able to do to cut down on the space you need. Can you store some files at home or in a small off-site storage unit? Can you use all your vertical space to avoid needing extra storage room?
3. How much you can afford to pay in rent
Obviously this is going to be one of your number one questions, and it’s one that you should really consider extra carefully. If you can’t afford to pay your lease for a month, your business could take a huge financial hit. So look at your current or expected earnings, and lowball the estimate. Don’t forget to factor in the related costs, such as insurance, utilities, and even hidden costs in the lease, such as the landlord’s ability to pass on increases in taxes or other operational costs.
Often, your ability to rent a place can be limited by your creditworthiness. If you’re just beginning, you may want to get some leverage by building credit with a business credit card. In addition, having a credit card or line of credit on hand as an emergency fund can help if account receivables don’t come in on time to pay your rent, as you’ll have some sort of short-term backup plan in place.
4. The nitty-gritty of the lease terms
Unless you’re a lawyer, it’s probably a good idea to hire one to review the lease terms with you. Again, this is one of the most important decisions you’ll make as a small business owner, so it’s worth putting the time and money into having an expert check over your lease.
According to the Small Business Administration, some things you should check for on your lease include:
- Expenses you might incur beyond rent
- Maintenance and repair terms
- The ability to sublease
- Flexible lease terms
- The ability to lock in the rental cost for a long period of time
5. Potential extra costs
As noted above, one thing you should look for in your lease terms is potential extra costs. For instance, unlike an apartment building where the landlord is usually responsible for maintenance, you may be responsible for a good portion of the maintenance of your commercial space.
You’ll also want to look into how much you can expect to pay for utilities. If possible, negotiate to have utilities included in your rent payment, which can at least make them a predictable extra cost.
6. Other options besides renting
Finally, before you sign a contract, look into other options that you might have besides renting. It’s a huge commitment, and can be a very expensive mistake if you don’t do it right. Most small business owners are better off working at home, meeting clients at coffee shops, or even selling products through distributors rather than renting their own space.
Another increasingly popular option right now is co-working. A co-working space allows you to rent a small desk space or even an office where you can meet with clients. This gives you the opportunity to work with other entrepreneurs, to get out of the house, and to rent at a minimal cost.
As with every business decision you make, you’ll want to walk into this one with both eyes wide open. Plan for the worst, but expect the best, and your first business space rental will be great.