Magazine for the professional nail industry.
Issue link: http://nailsmag.epubxp.com/i/168588
BUSINESS} Look Before You Lease Don't forget to read between the lines, before you sign the dotted line! Most salon owners rent their salon space, but few are trained in leasing legalese and the considerations that should be taken into account before signing on the dotted line. Learn what to look for so your lease works to your benefit — not your landlord's. BY LLOYD R. MANNING x A well-negotiated space lease is an important asset, while a poorly negotiated lease could be a liability. Many a budding entrepreneur has signed a lease and then later regretted its terms. Most likely, she failed to evaluate all those clauses and their longterm effects. The watchword: Look before you lease. Look at the location, the amenities, the neighbors, the covenants, and most importantly the rental in relation to the business you can generate from this location. Do they work for you or only the landlord? Not every for-rent commercial space, no matter how attractive or economical, is suitable for a nail salon. Before signing, examine your potential market, its source, and whether the location of your salon is better here rather than alternative spots. Consider your neighbors, your effect on them, and if they generate patronage for you. Compare various locations, their estimated drawing power, and your total occupancy cost for each as a percent of the projected gross income. 120 | NAILS MAGAZINE | KNOW YOUR ECONOMIC RENT A common opinion is that rental agreements are presented with most terms and conditions spelled out offering you two choices — take it or leave it. Not true! Everything is subject to negotiation. The most important factor in the rent is what you can afford and still be profitable, not the asking price. The first price is always what the property owner would like to have. This leaves you to determine what he will settle for. There are two considerations to be taken into account. The first is "market rent" and the second is "economic rent." Market rent is based on what similar rental spaces have been recently leased for, the rate adjusted for pros and cons such as location, amenities, condition, lease terms, etc. To determine market rent you need to find similar for-rent spaces and make comparisons. Economic rent, the more important criterion, is what you can afford to pay based on your projected income and profitability. Unfortunately, industry statistics are skinny and unreliable. The OCTOBER 2013 best procedure is to estimate your income from this location and deduct all expenses (except rent, but including a fair wage for yourself). From the remainder deduct what you feel would be a fair rental amount and compare it with your net profit hurdle rate (this is the minimum acceptable) and the landlord's asking price. How do they stack up? MAKE COMPARISONS Determine how much space you really need. Although you do not wish to be crowded there is no point in paying for excess space. The object is to attract the largest clientele at the minimum cost. It may only be a choice of this or that, but as best you can, project income, expenses (including rent), and profitability for alternative locations. Include the cost of any improvements you must make. Then compare. Low rental spaces may not be that cheap when you look at the bottom line. Alternatively, the high-priced location may not be that high priced if your revenue and net profit can be increased pro rata. Perform a sensitivity ©ISTOCK TOTALLYJAMIE >>>