Friday, September 11, 2009

Common Mistakes Made By Those Who Negotiate Their Own Lease

The Time Mistake

Time is most likely the biggest mistake people make when negotiating their own lease. Most business owners think that if you find a place to rent and set up shop, you pay the rent and away you go!

Not so fast folks. Assuming you’ve done all your homework which should include researching different areas, space availability, and done some comparison analysis, you still have to figure in time to negotiate the actual lease with the landlord and have it prepared which can take six months or more.

Once the lease is signed, there are usually improvements that need to be made to the space so that it will fit your business model. This means getting an architect to draw up the plans, getting the plans approved by city officials, obtaining building permits, hiring a contractor(s) to complete the work, and finally getting all your paperwork signed off so you can actually open for business. If you are using professionals to help you complete the job, the whole process can take up to six months easily. If you’re not using professionals, expect it to take at least twice as long, or even longer.

When it comes to negotiating a lease extension or a new lease on a property that you currently occupy, the “time” mistake that most people make in this situation is not planning ahead. Most people don’t think about renewing a least until it is time to actually renew the lease. That is usually about three months before the lease expires. Well, as you may have guessed by now, the likelihood of finding a new location is pretty slim because there is a lot that goes into moving a business. So what ends up happening is the business owner renews the lease because there isn’t any time to do anything else.

The Money Mistake

When you are a business owner there are many ways you can spend money even if it doesn’t appear that you are spending money. Time is a good way to spend money because if it takes you longer to do something that a professional can do in 1/8 the time, that takes you away from your business, which means if you’re not making money, you’re spending it. The moral of the story is let the professionals do what they get paid to do.

Money means negotiating the best possible rate and terms for your lease. And while those figures can easily be found in the contract, usually on the very first page, there are some other terms and conditions tied to money that are not always so obvious. Provisions like “expansion rights” will require the landlord to provide you with more space should your business explode it becomes necessary for you to expand to keep up with demand. Or “cancellation right” which will allow the tenant to break a lease if the landlord can not provide you with the space you need to expand your business (sometimes called a “kick-out” clause). A “sublet clause” that would allow you to lease out the space to another business owner should you either decide to close your business, relocate, or downsize.

Those are just a few of the clauses in a typical lease that could cost or save you money.

The Risk Mistake

A lot of people think that entrepreneurs are people who like to take a risk. Well that could not be farther from the truth. The reality is an entrepreneur leaves nothing to chance. Successful entrepreneurs have done their homework and checked their facts three times over or more. Why? Because they don’t like surprises!

Lots of small business owners will not conduct the research necessary to find the location that absolutely meets their needs. Choosing the right location can be the difference between success and failure. And just as important, is choosing a location that can meet your needs in the future. They fail to ask themselves; what if I need to expand, contract, or abandon my business completely? And if I need to do any of these things am I going to be able to without losing my shirt?

As much as I hate to say it, a lot of new business owners end up “settling” for a location because the get worn out looking at location after location and don’t know where to get the information they need that will tell them if a location will work or not.

So they take the “risk” on a location that may end up sinking their business in the long or short term.

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