There are just too many businesses that work and operate from unsuitable premises, and the reason is price. When they were looking for suitable premises they put too much emphasis on price, and not enough consideration was given to needs and consequences. It makes no difference whether you are commencing a new business or buying a business; it makes economic sense to have the right building and location.

Many businesses that rely on vehicular and passing foot traffic, are locked into constantly spending huge amounts of advertising dollars, just to tell people where they are. On top of that many offer gimmick giveaways for when customers do arrive. If their position offered good exposure, they would spend far less on advertising and gifts. If good exposure costs a little more in rent, then it’s worth it, because it costs no more in the long run.

Consumers shop by habit; they don’t like complications. They like it nice and easy. So trying to encourage them to walk a fair distance, or drive down a narrow alley way, or drive past your competition, to your remote cheaper location, becomes very expensive and adds substantially to your cost of doing business. Those elements reduce your margin, and in many cases the entire operation fails purely because they were just too difficult to get to in comparison to competition.

Just as your product and prices are competitive, so are your parking facilities. If your competition offers easy access and egress, with car parking that is protected from the elements, then you have to consider offering the same. If you don’t, then you are giving your competitor’s customers one good reason to shop there and not with you. You will be able to break that cycle by offering a reduced price, but again that’s out of your profits. So traffic lights, streets, buildings and parking facilities have a direct bearing on the businesses’ profitability.

There are other factors that can make or break the ideal building and location, and that is your building’s environment.

1. Is there a bus stop at the front or nearby that may enhance exposure. People spend time while waiting for busses or taxi's. They also leave chewing gum and other rubbish laying around and you will be the one that will have to clean it up.

2. Is there a Pub next door, where there may be the potential for drunken patrons to threaten night time security? The wisdom of experience has often shown drunken patrons urinating and vomiting in recessed shop front doorways, alleys and side loading bays. It ads to insurance premiums, and yes, those are the facts.

3. Are the neighbouring businesses compatible. Well pet food next door to a restaurant may or may not work. Compatibility is important. 

4. Are there conflicting trading hours or shift workers. You can look like you are never open to the after work shopper, if you close at 5.00 when every other business around you trades until 7.00 or 9.00 PM. Perception is important. 

5. Are the neighbouring businesses seen as controversial. A brothel or sex shop, or an abortion clinic next door, could leave you extremely busy, or vulnerable to "risk filled" protestors. Ask yourself, "What's the market I am targeting?" 

6. Is there is a school nearby that threatens security, or perhaps has an overwhelming influence over trading hours. This also has a severe effect on vehicular congestion at certain hours during school days. Many businesses have had to close their doors during school holidays because there are no customers. Why ? Regular customers don't patronise the shop because the populace of schoolies intimidates, and causes long delays during the week. Therefore to the passing shopper, it is easier to shop somewhere else, where there are no crowds of schoolies, and they can enjoy rapid service and good parking. Be careful there! 

7. If you are going into retail of a convenience type category, then consider that students of today do enjoy a certain level of disposable income, but the trend is towards healthy food, rather than quick takeaways. School, parents, government and television all play a role in spending habits and activities of our youth.

Setting up your Lease, Parking & Energy Requirements

When a person is about to commence business they become nervous and excited at the same time. Property and location decisions have long term consequences that bear the potential to become the foundation of financial outcomes in the future. We believe, we visualize and we dream, but there’s a lot of difference between hope and expectation. We all hope that our new venture will work, of course we do. But there may be some underlying reason the venture doesn’t work. Therefore it is in your interest that you do not sign a long lease until you are confident your business has developed sustainability.

Your lessee or landlord if you like, has gained experience in business merely by the fact they own or are paying off their commercial building. They understand the pressures of long term commitment. They, like yourself are looking to establish a long term relationship. It is likely your monthly rental fee will be contributing towards their mortgage, be it that building or any other. They want reliability from their tenant. They want a good cooperative working relationship. They have good cause for concern if you appear to be not making money. Their investment is dependant upon the success of their tenants.

During your inspection of the premises, don’t hesitate to ask for a helping hand. A fair and common help is a rent free “set up” period until you can commence trading, usually 2 to 4 weeks. This is time for painting, signage, floor coverings or drapes, perhaps the installation of specific machinery. Plus the preparation of your launch or relocation advertising campaign. Your lessor may also be offering to provide a fixtures and fittings “fit out” where the landlord completes the work to your specifications. The cost is borrowed through the landlord, and repaid in addition to the monthly rent.

Secondly, and most importantly, it is essential that you say to your landlord, you would like the first six months of your tenancy to be on a monthly basis.

If your business is ticking along quite nicely at the expiry of six months, advise them you would be pleased to enter into a long term lease agreement of the premises. Perhaps three years with a first option for another three after that as well.

But if your business fails within the first six months you would like to be able to walk away without the commitment of having to pay a lease out, that would more than likely be thousands of dollars. Your landlord will appreciate your honesty and the mature way in which you are handling your own situation. You can be as excited as you like, but don’t forget to be sensible. You will be rewarded for it.

Some landlords ask for 5 year terms, but the level of stamp duty could become a financial factor. Three years are the most suitable and common terms. If you take only one year as your first year, then be aware that your landlord has every right to formally request that you vacate on completion of the one year term. It seems  the most common commercial leases are identified as 3x3x3, thus being only a 3 year lease, with 2 options you can take up or decline. Twelve weeks or 3 months is the accepted notice period on most commercial leases.

Traditionally, in Australia, the cost of legally preparing a commercial lease is payable by the tenant or lessee, and not the landlord, lessor. This can be from $600 Aud upwards, and it’s in your interest to ask how much the lease preparation costs are before you proceed. The lease will be prepared by the Lessor’s solicitor and conveyed to your solicitor for perusal before signing.

Also consider this. Energy is an expensive resource. It’s expensive to our environment and our wallets. Make sure your building has good natural lighting. Perhaps sky-lights and sun reflectors. Large windows are good but depending on the aspect, may heat your building beyond the comfort zone. Natural ventilation is preferred because the alternatives will eat away at your profit margin. Poor ventilation can result in making you and your employees feel uncomfortable at work. A poor work environment will result in poor productivity.

Your employees look after you, so in return look after their parking and security as best as you can. You don’t want your customers having to park away down the street because your car park is full with your employees cars. Do your best at maintaining an equilibrium between employees cars and customers cars. Make yourself hard to get to, and any customers you hoped to get may just go elsewhere.

On the other hand, if your business is a tourist attraction you will want a variety of vehicles in your car park that could be perceived as popular patronage. An empty car park could send the wrong message. You have to remain “user friendly” with an understanding of the perception you are projecting to your market.

Successfully operate from your building for any longer than 18 months to 2 years and beyond, and your lease will generate value in the event of a sale. Your lease is a purchasers guarantee that the location everybody knows, and has proven successful in the past, is available in the future. It is contributing towards generating repeat business, and that’s goodwill.

These rules apply moreso to retail of goods. If you are a professional with a specific market, say accounting or legal, medical or dentistry then foot and vehicular traffic will not represent the level of importance as an ice creamery or food shop would command.

But what about the economics. In Australia, Kmart introduced themselves to the public in a free stand alone glass fronted building in what was a fringe suburb of Melbourne. Car parking stretched across their entry doors to accommodate probably 300 cars, maybe more. Since then we have seen them go from stand alone, to share with sister company Coles, then to shopping centre locations. The reasons for changing trends were more of an accounting decision rather than an image decision. By selling off the buildings they were able to release millions of dollars that returned better on retail sales than capital appreciation.