One of the most effective strategies to conducting site selection is not by looking for the proverbial needle in a haystack, but instead, by using the process of elimination.
One of the most common reasons for a commercial-business failure is due to a poor location. A poor location ultimately results from poor site selection. How else can you explain that identical stores from the same chain or franchise system will vary as much as 200 percent in sales volumes? Of course you will need to factor in store size, marketing budgets, management and so on; however, these are all secondary to the importance of location, in my opinion.
Essentially, there are three types of businesses: profitable, break-even and go-broke. A truly profitable franchise location will make money and the business will appreciate in value. A break-even location will pay the owner a small salary and pay the rent but not much more. The go-broke location that comes to my mind lasted less than three months from opening to closing for one unfortunate tenant. Despite my warnings that this was a go-broke location, the business owners poured in $80,000 into their store setup and couldn’t pay their rent by the second month of operation. Usually, a go-broke location will not only steal your capital but also put you into personal bankruptcy – after you have maxed out your credit.
If you thought that site selection was all about location – location – location, you’re right … intellectually. However, when first-time tenants with limited leasing experience are involved in the site-selection process, good-old common sense often goes out the window. Consider for a moment that site selection involves both science (with part research and part timing) and good intuition (part luck).
• Allow enough time so that you’re not making decisions under pressure. Typically, for a new business, you should start the site-selection process six months or more in advance of when you want to open. If you find a prime location, usually the landlord will hold it for you for a few months. However, if the process takes longer, you may need several months to finalize the offer to lease, review the formal lease documents and/or build-out the store.
• Make your leasing inquiry by calling the “For Lease” number on the property sign. This way, you will meet and negotiate with the listing agent directly. Tour prospective sites in order from worst to best based on curb appeal. This way, you will become more confident, ask better questions and be more in control of the leasing process.
• Don’t telegraph your intentions by giving buying signals. Ask the leasing representative to email you preliminary information before you agree to view the space. When viewing, stifle the urge to think out loud; subtle comments to a partner/spouse and overheard by the leasing representative can work against you. If you’re asked how much you have budgeted for rental payments, remain vague. Not every question asked deserves an answer – not yet, anyway.
If you find yourself weighing a better location at a higher rent versus a lesser location at a lower rent, my advice is to go for the first option. When consulting to tenants and doing site selection, my job isn’t to find the cheapest location, it is to select a site that will help the tenant maximize his/her sales.
Commercial tenants need to know there is a great deal more involved with the site-selection process than just what is explained here. These pointers are just a few tips of the iceberg. •
Dale Willerton is The Lease Coach, a senior lease consultant who works exclusively for tenants. He can be reached by email at DaleWillerton@TheLeaseCoach.com.
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