First Impressions Matter: Get the Retail Space You Want

May 30, 2012

I hate to admit it, but I get frustrated looking at the poor quality of the offers to lease that come across my desk. I know that I am not the only landlord who feels this way.

With the banks absent from the small business lending market for several years where can you go to get the startup money?

Friends and relatives are one source and the landlords of the space you want to lease are another.

Actually, there has never been a better time to ask landlords for a major portion of your start up costs. They, the landlords, are sitting on a substantial amount of vacant retail space and are creatively looking for ways to bring new businesses into their shopping centers.

I have never seen a time in the last 35 years when landlords were more willing to invest most, if not all, of the cost of the tenant improvements for start up businesses. Landlords have been practically begging for credible start up entrepreneurs to lease their space to.

So what has been the hang up? Most of the proposals are just not credible. These proposals are often slip shod and tend to provide very little detailed information about their business or their owners.

Below are 5 things you can do which will make you stand head and shoulders above 90% of the competition. I guarantee that you will be taken seriously and the odds you will get the financial help you want from the landlord will go up dramatically.

First, let me take a moment to give you some insight into how landlords think. As a group, most of them started just like you, with an idea and not much money. Having started that way they understand your position and are sympathetic to other entrepreneurs.

Most of them have gone through tough financial times themselves at some point in their business life and are willing to give you the benefit of the doubt. They are looking for reasons to say “yes”.  It is up to you to give them those reasons.

Here are the five things you can do:

  1. Write a bio of yourself. Tell who you are and what you have done. Don’t worry if you do not have experience, it definitely helps, but it is not a deal killer. Focus on all the reasons you and your store will succeed.
  2. Give them a copy of your business plan. This will show you are serious, that you have researched and studied your market, and have a plan for success. In your plan talk about the obstacles or problem areas you see and an give explanation about how you will address them.
  3. Prepare a three year income/expense operating proforma. Make one for worst case, best case and expected case scenarios.
  4. Write up a study on your competition. Talk about all your potential competitors, about what they are doing right and about how you will differentiate your business from them. Having competition is not bad. Competition means there is a market for the product you are going to be selling.
  5. Put together a start up budget. This is different than your operating proforma and it should cover just that period of time leading up to opening your doors for business. Things to include in the budget:
    • Tenant improvement costs
    • Equipment and fixture costs
    • Sign costs
    • Municipal permit, impact fees and license costs
    • A source and use of funds section

Finally, put it all together in a sectioned and labeled binder.

It will look impressive and the recipients will believe you know what you are doing. The most important thing is that you will believe you know what your are doing too. That is what will get you the lease on the terms you want.

Leave a Comment » | Build-out, Entrepreneur, Planning, Retail, Site Selection, Tenant | Permalink
Posted by Gary Simning

The Secret Benefits of Budgeting

September 22, 2011
Mac's retail store in Alberta

Image via Wikipedia

Do you have enough money set aside to take your business through the first 12 months of operations?

A common mistake made by small business owners is focusing on the cost of opening the store and not setting aside the money needed to actually operate the store once it is up and running. Last week I received a call from a broker trying to raise money for a client. His client had spent several hundred thousand dollars building out her store and did not have enough money left to actually open the store.

Entrepreneurs are by nature optimistic. That optimism leads to overestimating how much we can do ourselves and underestimating what it really costs to open a retail business.

Below are a couple of rules that rarely fail in business:

Rule 1: It’s going to cost more than you think. Put together your cost estimate based upon all of the work being completed by others at market rates and then add a contingency factor. Then add 20% on top of that as a reserve.

Effective project budgeting is generally hampered by two things. 1) Believing you are going to reduce start-up costs by doing the work yourself leads to underestimating the real cost of starting the business. 2) Raising money for a start-up takes time, effort and exposing oneself to rejection.  Because no likes to be rejected the tendency is to raise the minimum the business owner thinks he can get by with.

It is much better to go through the rejection and raise all of the money including the reserve than get the down to the finish line and then have to find the money to get the store open and keep it running.

Take your worst case estimate of the costs, add the 20% reserve and raise the money up front. When your store is up and running you will be happy you did.

Rule 2: It’s going to take longer than you think: Project timelines get distorted by the reality of getting people to do the work. People work to their schedules and not to yours. That goes for the people in government issuing permits, as well as, the people you are paying to work on your project. Time is money. The longer it takes to get the store open the more it costs you both in actual dollars spent and lost revenue. Build your timeline based on what it will really take to get your plans drawn, obtain all of your permits and build out the store and then add 20% beyond what you think will take to get the store open.

The 20% reserve you build into the budget and the timeline are for your use only. If the people working for you know about the reserves they will work toward the last possible date to complete the work and will use the entire amount of money they know you have available. Establish the reserves and keep them to yourself.

Finally, develop the budget in two parts. The first segment is for the construction and outfitting of the store. The second segment is the budget for operating the store. Set aside the money in the operating budget in a totally separate account and do not touch it until the store is actually ready to open. If you see that you are going to overrun the construction budget go back and raise the additional money you need. The operating budget is for operating the business.

To successfully open a retail store front business raise more money than you think you will need; budget more time than you think it will take; keep your operating capital separate from your start-up capital and keep all of this to yourself.

4 Comments | budgeting, Build-out, Coaching, General, Planning, Retail, Timing | Permalink
Posted by Gary Simning

Preconcieved Ideas Can Send Small Business on Wild Goose Chases

July 18, 2011

Personal biases and preconceived ideas lead to unrealistic expectations when starting your own business. I recently worked with a small business start up attempting to lease space in order to open a restaurant. Both the husband and the wife were employed and were planning on retiring soon. Owning and operating a restaurant was their plan for supplementing their retirement income.

After listening to reports over the last couple years about what shopping center owners were willing to do in order to lease vacant space they developed the idea that landlords were desperate and would do just about anything in order to get a tenant. With that thought firmly implanted in their minds proposals were made for space situated in shopping centers at prime locations. They made offers at extremely low rental rates and asked the landlords to spend the money and build the tenant improvements. Each of their proposals were turned down. By the time they arrived at my door they were frustrated and did not understand why they could not get what they wanted.

So let’s break it down; First they had a preconceived idea based on information only partially true. There were some great lease deals made by experienced retailers during the darkest days of the market collapse. Those tenants brought something to the table (experience, credit and money) in order to get what they wanted. The small business owner did not have experience, was unwilling to risk much of their own money and expected the landlord to do the build out at the landlord’s expense at sub par rents.

Personal biases and preconceived ideas will lead to bad decisions. Take the business environment you will be competing in into account when making your plans. Base your expectations on what it takes to establish and operate your business without any special deals or circumstances in a normal business environment. Your chances of success will go up and wasted effort will go down.

The blog Startup Professionals Musings elaborates on the preconceived ideas and the biases people form when starting small businesses.

1 Comment | Build-out, General, Risk, Site Selection | Permalink
Posted by Gary Simning

How To Avoid Tenant Improvement Cost Over Runs

June 22, 2011

For the small business owner few things are more frustrating or gut twisting than getting halfway through a project and having your contractor give you a change order for unexpected items that totally blows your budget.   You are left contemplating where to get the money to finish your store and get the doors open.  As you scrabble for the money, the store sits partly finished for weeks, or even months, and valuable time is lost.  You can’t walk away from the store because you have committed everything, and you’re obligated to a long-term lease. You are “caught.”

How do you avoid this trap?

Select a good quality contractor who has been in business for many years and is licensed and bonded. Contracting draws to it many people with little experience organizing and managing projects.  The only requirements to obtaining a general contractor’s license is to pass a test and pay the fees. The ease of getting a license draws people who maybe talented as framers, but who do not have a clue how to organize, manage, budget the work and payments to the sub contractors. Longevity in the business means a lot. Contractors generate a lot of their business from referrals, and they only get referrals if  they have satisfied customers.

Many people find a contractor in a way that I do not recommend.   They simply put out their plans to bid.  This requires plans to be complete and ready to submit to the city, or plans that have already been submitted to the city and been approved.

I prefer to select a contractor before the plans are drawn and have the contractor team up with the architect in the design phase. The architect brings creativity and knowledge of codes and structural issues. The contractor can bring the same things, but with practical hands on knowledge of what happens during construction. Using both of them in the design phase will generally catch problems that could or would have come up during construction.

I have found my best contractors by word of mouth. Ask for referrals from leasing agents, developers and business owners.

Select the contractor from interviews and after you have checked with the state licensing board and better business bureaus for complaints. Rather than bid the project, I prefer working on a negotiated contract basis with a contractor that will open up his books and give me a detailed line item budget.

If the project will take longer than thirty days, progress payments to the contractor and his sub contractors will have to be paid.  These payments should only cover  the work completed at the time of the payment.  An amount of money (retention amount) generally 10% should be held back from each payment pending completion of the project, receipt of a Certificate of Occupancy from the city, satisfactory evidence that all the sub contractors have been paid, and complete lien releases have been given to you.  The retention is your insurance policy for getting the contractor and the subcontractors to return and repair the “pick up” items that occur on every job.

Planning and using the right people at the right time is the key to a successful store opening.

Leave a Comment » | Build-out, Tenant | Tagged: , , , , , | Permalink
Posted by Gary Simning

Save Money: Bring an Architect on to Your Team Early

June 14, 2011

A successful store opening doesn’t just happen. Having a team of experts in whom you have qualified and established a working relationship is a key element to a successful beginning. Knowing when and how to use these experts is another key.

Architects, like many other professionals, tend to specialize in specific types of buildings; retail stores, restaurants, office buildings and medical offices, to name a few. These businesses have specialized requirements when it comes to design, layout, mechanical systems, and building codes. Finding an architect who has specialized in your market niche saves you time and money.

The architect has a significant role in the early phase of your business planning process. With specialized knowledge of your type of business, the architect can help you correctly determine the optimum size, shape and specialized building requirements your business will need.  With the excitement and enthusiasm that comes with opening your own store, there often comes the mistaken idea that “bigger is better”. A competent architect will help you avoid this trap of grandiose thinking. Always keep in mind that rent as a percentage of gross revenue, for retail uses , should run between 6% and 10%. For example: good pre-planning of your space can make the difference between taking a 2,000 square foot space instead of a 2,500 square foot space. If you were paying $2.00 psft plus another $.65 in Common Area Maintenance Costs this 500  square foot difference would save you $15,900 per year. Planning pays.

Read the rest of this entry »

Leave a Comment » | Architect, Build-out, Timing | Tagged: , , , , | Permalink
Posted by Gary Simning

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