startups

Leasing Commercial Office and Retail Space for the Budding Entrepreneur

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There is a lot of opportunity in investing right now, especially since we’re at the beginning of an upturn in the economy. So, if you are setting up your new business, you will undoubtedly need to lease space, whether you’re opening a retail space or office.

It’s just so much more commercially viable if you can plough your capital into the business, not the purchase of the units. For start-up businesses, the cost of renting vs. purchasing office space offers tremendous advantages in saving precious start-up capital. However, you’ll need to look into leasing your space.

Property Managers

Professional property managers specialize in handling residential and commercial real estate which businesses can lease as office or retail space at affordable rates. Commercial properties are leased on specific terms and conditions that are stipulated in contracts provided by the property management firms. You will need to sign one if you wish to lease space:

Retail Space

Stores need to open up in attractive locations that can draw in customers. You’ll find commercial retail space is available for rent through property management companies. Prime retail locations are typically situated inside shopping malls, at busy shopping plazas, and even in popular high street venues. Commercial property managers also usually charge premium fees per square foot for the most desirable retail locations.

Office Space

Office spaces can command quite a premium, depending on its location in urban or non-urban environments. Additionally, you will need to look out for such additional aspects: public transport to the location, parking lots (esp. if you have lots of workers), restaurants and other infrastructure for your staff, location in respect of your suppliers, deliverers and your customers. Are you, for example, near an interstate or railway station?

The Lease…

Once you have completed the crucial task of identifying a business location, the next step is to negotiate a lease. Considering this is often one of the biggest expenses you will have, do your homework before you lock yourself into anything. For starters, do not assume a commercial lease is the same thing as a residential lease.

… and its conditions

General maintenance and care of the property will likely be your responsibility. You will not have the luxury of calling up the landlord to fix your air conditioning units. But commercial property managers may be responsible for all exterior maintenance of an office building. Snow removal and landscaping are done as needed by a management company. Similarly, the common areas such as the lobby or lounge will need to be maintained by the management (if the property is shared by others).

Also, it may be challenging to find a 1-year lease. If you cannot, then it becomes increasingly important to ensure you understand the lease in detail and are fully aware of all potential fees. The last thing you want to do is create a budget which later on is inaccurate due to surprise costs.

Along those lines, consider obtaining legal help. If this is your first time leasing commercial space, then save the learning curve for a less significant expense.

Financial Advantages

While a seasoned and established business owner may choose to consider purchasing real estate, that may not be an affordable option for someone just starting out. By leasing space from a company like Hi-Reit (which leases office and retail space in the United States of America) you are not tied to a mortgage.

Perhaps your monthly rent will even qualify as a tax deductible business expense. There is the additional benefit of not tying up your money in ownership, but rather investing it into the launching of your business.

The Exit

Regardless of the successes or struggles with your business, make sure you have an exit strategy. Without knowing what the future holds, you would be wise to insist upon defining a termination process. If you need to move or close up shop, you want to have minimal constraints to do so. Remember, your time to negotiate is before you sign the contract, not after.

Have you had problems starting up your company because you couldn’t find a location? I know we had terrible trouble trying to find a property that was zoned so we could get the business licenses needed.

Business Start-Up Killers or How to close your business in five steps!

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Having been in business now for nearly eight years, I recently had pause to consider why typical businesses don’t succeed in the local market in Taiwan or anywhere. This list includes some of my observations:

1. Poor Financing

Most business owners here in Taiwan budget enough money to open the business, but they base income projections and the related decisions on the most rosy of circumstances in the first three months. The result is often that the business will close within 3 months because the businesses have run out of cash, and haven’t built up enough customers on a returning basis to pay for the basic costs. If you’re planning to open any business, remember to consider several scenarios and prepare for different results.

When we opened our business, we had very low estimates of income in the first six months; and we were financially comfortable with the idea of paying costs until the business could support itself. Part of that was a realization that salaries for the bosses (the only staff at the time) would be token only.

Solution: Always budget for a period at startup in which income is less (much less) than your expectations. Don’t forget to include unexpected startup costs. Be bullish on these because best-case scenarios rarely occur.

2. Missing the Mark

It’s amazing how many business owners only look at the superficial aspects of running a business. Yesterday my wife and I ate in a coffeeshop that had newly opened. The coffeeshop had a great location, and lots of potential. But when we walked into the store, everything LOOKED fine. It’s only when we ordered the food that we noticed the LOOK of the store was quite different from the reality. The staff were untrained, didn’t know how to greet customers, the drinks we ordered were pricy (for that kind of service) and really didn’t measure upto drinks at half the price in better restaurants (no flair), and the management seemed too busy doing the work to notice what was missing: an atmosphere, good service, and passion for the foodservice business. Oh, well.

The restaurant was called O Sole Mio and had a very pretty facade with a decent counter area, and much of the right equipment, too. Its location was on a major route around the north coast of Taiwan just outside Jingshan. In reality, most people would only stop once as we did.

Solution: Focus hard on the quality of the food or service that you produce. Make sure that they are up to scratch. And be your own harshest critic.

3. Location, Location, Location

That’s right. We’ve seen great businesses with potentially good profit margins killed by their locations. Why? Because the location chosen for the business ate up most of the businesses income. The business owner had chosen a high traffic location to maximize the market exposure. Result: he ended up paying over the odds for rent. When it turned out the product wasn’t that great, initial business interest fell away, and word of mouth didn’t occur.

A bakery opened across the road from our community and fell victim to this situation. Worse: the baked goods were quite unexceptional, and there was little reason for customers to cross the road to shop there, when TWO very good bakeries were less than 100 yards away. It shut in less than three months.

Solution: Choose a cheaper location, and create such a great product that people will go out of their way to find you. Once you have the quality, margins, and cash, then rent a mainstream property.

4. Hiring Staff

This has to be the biggest bugbear of any new business. Why? Finding good staff is an ongoing nightmare for our school from the first year that we opened. We have recruited actively most of the past eight years, but many of the applicants have been less than desirable. Even those we vetted carefully and who came to interview and do demos with us were in most cases unsuitable. We hired the best of those interviewees, but in reality only one or two of those we hired had the passion to be an excellent teacher.

Of course, hiring and training are both essential. When you hire new staff, it’s important they be trained properly. This is an aspect we seriously underestimated as we expected our hires to have the same passion and skill as we shared. This expectations have been tempered by our experience.

Solution: you have to be prepared to hire selectively, manage directly, and fire decisively. Poor staffing and staff who are unmotivated and interested only in their salary both will seriously undermine your business.

5. Freebies, Giveaways and Discounts

Over the years, we have noticed that some promotions work and some promotions look like they work. You have to learn to tell the difference.

  1. Freebies – Giving away products and services for free rarely generates a good client-base. Why? Because you will always attract people who like ‘free’, and who will shrink at the first sign of a bill or invoice. If you are going to do freebies, make sure it is tied to something that is purchased. And clearly state that these are introductory offers only.
  2. Giveaways – Giving away products may work for toothpaste and shampoo. It will likely not work for your business. Why? Because you will have to give away a lot of samples just to get some leads. Be careful with what you give away.
  3. Discounts – Discounts also can be used to attract attention, but you need to be careful in how you manage them. Otherwise you will find that you have to offer permanent discounts to keep customers who ‘thought’ that the discounted price was the regular price. Worse, as we found out, some customers will tell others that that is the pricing.

Solution: Clearly limit the duration, type and extent of your promotions. Make sure that your discounts, freebies and giveaways are closely tied to those you are trying to attract. And manage your cost basis effectively enough that you can still have a decent mark-up after your promotion. Otherwise, you will find it difficult to service those accounts properly.

One of the biggest reasons that you need to avoid these ‘killer promotions’ in the long term is simply that you will end up in a bidding war either with your own pricing or with a competitor’s. You should have confidence in your pricing structure. Aggressive promotions will create initial surges of interest, but may undermine the future of your business, the quality of your products, and your reputation.

These five issues are all issues that I’ve dealt with in different situations. They did not all pertain to my current business, but I’ve seen how the effects of these bad decisions can effectively ruin a nascent business, even one that has passed the first two years. Do let me know if you have any additional suggestions for this list.

Running Our Business

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We’ve been running a business (a language school) for over 6 years, and it’s grown from a very small base into a much larger concern than originally it was. Naturally, in business life, there are the ups and downs of the operation and the cycle of business. We’ve become aware of this.

Yesterday, though we noticed that the number of our enrolments had dropped in September, so we are still trying to analyze the situation. But anyway our moods at school have been dropping this past few weeks because of the antics of one of our staff members. So this just added icing to that cake. We are currently not profitable as the business goes right now, which feels like a real slap in our face.

I recently took back more or less complete financial control, but the hard part of our business is predicting future income (as I guess any) so to discover enrolments are down was quite a shock to me. This will naturally make the next few months more difficult than they would otherwise be.

We were planning to do so many things, but now we need to focus on our core essentials, and we need to develop our marketing skills. So I have decided to dedicate this website to my search for business and financial success. I’m hoping that its successes and failures will encourage other readers to try.
Kenneth