Asset Based Loan

Business rental lease space – how long should you sign for?

business rental lease space – how long should one sign a lease for?

If one bases the decision just on the numbers, the longer the better since most times the landlord will give better terms on a longer lease. However, the business owner signing the lease should proceed carefully.   There are other important considerations that can alter the decision.

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Foot Traffic – The foot traffic of the location will influence the volume of business.    If the foot traffic is light, this may significantly decrease the amount of business that comes through the door, which will affect gross receipts over the course of the year.

Statistics provided by the city when a business rental lease space has been found are important.    Those statistics may include demographics, population statistics and trends, average income information of the area, and homeowners versus apartments are all important statistics.

Visual Inspection – Possibly nothing can replace a visual inspection of the potential business rental lease space prior to signing the lease.    Sit within a line of vision of the location and watch for several hours, and for several days.   Watch on Mondays, watch on Fridays and on weekends.   Watch on different weeks.    Is the traffic extremely light in certain times and heavy other times?     Do some advance work.    If normal closing time is 7:00 P.M., do people walk out of restaurants late and walk by the location?    Question whether such people are potential customers if you will be the new tenant of that business rental lease space.

Seasonality – In the analysis, it should be considered whether the business is seasonal, or even partially seasonal to begin with.   If so, the time of the year should be factored into the analysis.

For any business rental lease space being considered, if a thorough analysis does not yield total confidence that heavy customer traffic will be a sure thing, then a shorter term lease should be signed.

Signing a long term lease may result in better terms, but if the renter has misjudged what the sales will be, a long term lease may be devastating to the business.    Instead of a 3 – 5 year lease, consider a 1 or 2 year lease the first time.  If sales are soft and a strong effort has been made to promote the store, lower sales can be used to justify the best terms possible if a renewal of the lease is done.

If sales are strong, then the shop owner may have lost some money in the terms of a new lease, but this may worth the cost to help insulate them from the risk of being in a long term lease they cannot afford.

The landlord may not have sympathy if you are having a difficult time meeting the monthly rent.  Ultimately,  protecting your business with a shorter term lease on a business rental lease space can prove to be the best decision.

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