Renting space for the first time is a major milestone in the life of most small businesses. In many cases your space, whether it is retail or office, is the first impression you give to customers, prospects, investors and employees.
Many would say the old real estate adage of “location, location, location” should play a prominent role in your selection. But depending on your type of business, a great location will mean different things to different businesses. And when you need local real estate services, you can find local listings here.
Keep these things in mind as you select your first space.
Business type = Location
Your business type will play a huge role in selecting your first location. You will need to determine whether you want retail, office, warehouse or industrial space. And because retail space is usually the most expensive per square foot, you will want to make certain that you are choosing the right type of space. Some important questions to answer are:
- Do customers come to your location?
- Do you need to be visible to passing traffic?
- Do you go to your customers’ locations?
- Do you manufacture and/or distribute products?
- Do you have employees and how do they get to work?
- What kind of parking will you, your customers or your employees need?
If your business will depend heavily on pedestrian or drive-by traffic, such as a coffee shop, restaurant or retail store, you’ll want to choose a highly visible location with plenty of potential customers passing by.
If your business has customers that will actively seek it out, such as a daycare or fitness center, you’ll need to be easily accessible from nearby population centers, public transportation and major arteries.
If you’re in manufacturing, distributing, warehousing, services (e.g. plumber) or have a business that depends on timely deliveries from suppliers, you’ll want to choose a location in an industrial park near major highways or ports.
If your business doesn’t depend on customers coming and going, you can probably get away with space a little off the beaten path and avoid paying top dollar for premium locations.
If you expect to hire more employees soon, access to public transportation may be an important feature in attracting and retaining your workforce.
Notice your competitors’ locations
Keep your friends close and your enemies closer — especially if you’re in retail. Not only will it be easier to keep an eye on your competitors, but you can benefit from their marketing efforts. For example, if there is a group of furniture stores together, it increases the number of customers shopping for furniture in the area. Plus, most franchises put in a great deal of research before selecting a location. So there were probably some very good demographic reasons a competing franchise selected a specific location. If you’re a small business, take advantage of the free research they’ve already done for you.
Zoning, restrictions and signage
Most cities and shopping centers have strict zoning and business requirements. Before you sign a lease or purchase property, be absolutely sure your business type will be permitted to operate in that location. Some shopping centers have contractual restrictions to the number business types allowed (i.e., no more than two fast-food restaurants). Also, most communities have rules regulating signage, including the size. To learn how to make the most of your signage, read Local Business Signs Basics.
Because this is your first space, it may be helpful to find a commercial real estate broker who can lend a hand in showing you the ropes. Don’t be discouraged: Because you’re probably not renting more than a few hundred square feet, not every broker may be willing to spend a lot of time with you. Find one who specializes in small space tenants.
Every business is different, so it’s impossible to provide a rule of thumb for square footage here. At the very least, ask a trusted colleague or check out what kind of space your competition has. Also, remember that square footage and actual usable space are very different. Always be sure that the location has all the usable space you’ll need to do business, including your storage and office needs. Plus, it’s smart to plan for about 10% to 20% more space than you think you’ll need to give yourself room to grow.
Terms of an agreement
In the early stages of a business, the best thing you can look for in a lease is flexibility. Try to sign a lease that’s no more than 12 months, even though the rates for a longer contract will probably be more attractive. To protect yourself against future rent hikes, watch for language claiming that the rent is tied to “fair market value.” Ask for a clause that correlates rent increases to the Consumer Price Index (CPI) instead. See if your potential landlord allows for the expansion or contraction of your space as business requires. Many leasing companies will require a personal guarantee from startups in case the business doesn’t make it; then, short of declaring personal bankruptcy, you’d still be on the hook for the rent. It’s also usually a good idea to have your attorney look over any contract or lease.
Questions to Ask
This is where it can get tough trying to compare apples to apples. You will want to find out what’s included in the rent. What might seem like a good deal may turn out to be a terrible one after you start adding up all the extras. Ask about things such as:
- Who pays for utilities such as heat, electric and water?
- Are those utilities individually metered?
- Is the space wired for internet, cable and phone?
- Does it offer specialized wiring or can it handle high power consumption needs?
- Is there an individual temperature control for just your space?
- Is there a common entry or meeting space included?
- What about business services such as a receptionist, fax, copier, etc.?
- Who’s responsible for custodial duties?
- Who’s responsible for building maintenance and the common areas?
- Who’s responsible for the parking areas?
- Who’s responsible for exterior signage and lighting?
- What’s the build-out policy so you can customize your workspace to your needs?
- What’s their policy on subleasing your space?
- What kind of building security is offered?
If you’re a home-based entrepreneur looking to take your professional image to the next level by renting space outside your house, there are alternatives to traditional office space. Business centers or executive suites allow you to rent an office or a workstation for as little as $100 or so a month. They can often help you project the image of a professional organization at a more affordable cost than traditional office space. Plus, these spaces frequently allow for immediate occupancy and usually include items such as a receptionist, secretary, fax, photocopies and conference rooms as part of the package.
Another option is to sublease space from another tenant. Just be aware of the possibility of loud music or other distractions that could make for a tough work/landlord environment. You could also share space with another business that offers different but complementary services. For example, an accountant might be the recipient of a lot of referrals if they share space with a professional services provider. Be cautious: These leasing options can be hit or miss.
A final option for those not quite ready to make the leap to full-time office space is known as a virtual office. This option usually allows for that more legitimate mailing address (rather than your home) with options such as an answering service and the occasional use of an office or conference room.