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Putting Down Roots
When a small business owner picks a location and negotiates lease terms, those decisions have far-reaching financial consequences for the company and, perhaps, the owner. Whether the business succeeds or fails, the owner's responsibility for lease payments can continue for months, perhaps years.
Here are some things to consider before signing a lease:
Lease Types. Commercial leases come in many varieties including:
Flat, or gross, lease. The tenant pays a set amount that includes utilities, parking and common-area charges.
Net lease. In addition to the base rent, the tenant is charged extra for taxes, insurance and maintenance.
Percentage lease. In addition to monthly rent, the landlord collects a percentage of gross sales.
Lease Terms. "Most of the time the landlord isn't the one who prepared the lease," says Matthew Zifrony, a Fort Lauderdale real estate lawyer with Tripp, Scott, Conklin & Smith. So, a business owner should read the fine print and negotiate important terms with the landlord. Advises Zifrony, "Don't be afraid to ask."
Perhaps most important for a start-up business is whether the lease includes a personal guaranty permitting a landlord to have redress against an owner's personal property if his business fails.
When deciding how long a lease to sign, consider the business's track record. A popular retailer moving to a choice location might try to get a long-term lease at a flat rate. On the other hand, a start-up business with an uncertain future would be foolish to commit to more than a year or two. For many tenants, a one-year lease with an option to renew preserves flexibility. Market conditions often govern the lease terms available.
In most cases, it's worth it to pay the $200 to $750 to have a real estate lawyer look over the lease. A business owner who doesn't understand the terms of a lease is asking for trouble. Tampa lawyer Anthony G. Woodward quips, "Pay me now or pay me later."
Location. Pick a site with customers or clients in mind. Is a certain shopping area or section of town important? Does ambiance matter? For example, a financial planner catering to high-income individuals requires a different setting than an agent selling auto insurance.
Floor Space. Because commercial space isn't cheap, take a hard look at who and what must be housed at the location. Can you move some files (or people) off-site to save space? If the business is growing rapidly, don't underestimate how many square feet will be needed for an expanding work force. Jim Citrano, vice president of Jacksonville's Gate Riverplace Co., warns, "Space is the least flexible thing you have in your equation."
Timing. Take your time and start looking for a location six months before you want to move in. Keep in mind that after picking a site and negotiating the lease, it can easily take 90 days for "leasehold improvements," the renovations required to make the property suit your business. Thomas Kates, president of Stiles Realty Co. in Fort Lauderdale, however, suggests limiting your search to 10 to 15 properties. In truth, most business owners rush the leasing process. Says Kates, "They're all in a hurry."
A PROPERTY LEASING CHECKLIST
Tampa attorney Anthony G. Woodward of Trybus, Woodward & Sinsley specializes in helping small businesses protect their interests in real estate leases. For a small business owner, the key is knowing what questions to ask before signing the lease. Woodward recommends checking these five points:
What's the price per square foot? It's not enough to know the total lease payment. Use square footage information to compare one lease to another and the historical cost per square foot in the area.
Can you avoid a "personal guaranty"? Find out whether you and your family will be personally responsible for making lease payments if the business closes or goes bankrupt before the lease term is finished.
Is there an allowance for space renovations? Often landlords offer some free rent or a "buildout allowance" that helps a small-business owner pay for improvements to the property, such as new flooring, wall partitions, painting and electrical work.
Who does the leasing agent represent? Make sure the leasing agent works for the business owner, not the landlord.
Will the landlord agree not to lease to the competition? It's likely to be easier for an entrepreneur to succeed if there's not a similar business next door.
ENTREPRENEURS
Hatching Small Biz
This spring, NASA's Kennedy Space Center and the state-funded Technological Research and Development Authority (TRDA) open a 10,000-square-foot business incubator at Brevard Community College in Titusville. TRDA and NASA will fund the project for three years, with $150,000 a year from each of the two partners.
Business incubators help nurture start-up businesses by providing management and technical advice and, frequently, cheap rent.
With limited dollars for out-of-state recruiting, economic developers increasingly look close to home for job creation. So interest in incubators is on the rise from the Panhandle to South Florida. In Pensacola, the local chamber, a small business development center and an inventors' group are looking at whether an incubator is feasible. Palm Beach County's Private Industry Council established an incubator in June 1994. With 20,000 square feet, it now serves 40 companies.
SPACE PLANNING
Chaos Free
An organized, efficient work space can save time and money.
What's so tough about setting up an office? Buy a few desks, chairs and computers and arrange them. Get some supplies, a heavy duty coffee maker and, voila - the perfect office. Ah, if only it were that easy.
Office planning today means getting the most out of every square foot of expensive commercial real estate. That requires creative decisions on where to put walls, partitions, furniture, equipment, supplies and the accompanying electrical, plumbing and telecommunication outlets.
Help is available from space planners, who typically work out of architectural and interior design firms, and from business-office furniture stores. Most charge $35 to $85 an hour, but it can go as high as $110 in South Florida. At furniture stores, space planning may be gratis if a business spends a certain amount. "They can bring ideas and creativity to make your space work better and function better than you can do on your own," says RE/MAX Premier Realty broker/owner Dan Hirschy, who worked with Ocala's Office Environment Center in planning his 18-person, 5,000-square-foot office.
Whether you are moving into a new building or renovating existing space, here are a few hints and ideas to consider:
Workspaces and furniture. Rethink the needs of each worker, keeping in mind that semi-private work areas aren't just for support staff. Consider team work areas and a single, shared private office for client or customer meetings. Hang bookshelves on panels to save space and provide flexibility. Reuse old desks as fax or copier machine workstations.
Telecommunications. Get professional help from the local telephone company or a computer installation professional for help in relocating wires and cables for computers, modems, fax machines and printers. To avoid dangerous, tangled wires and cables, put outlets level with desktops or use computer-adapted furniture designed so that wires and cables pass through desktop openings or channels in legs. Anticipate future technological needs, such as computer networking and teleconferencing.
Storage. "Stop thinking about what you have. Think about what you need," says Jacksonville interior designer/space planner Janice R. Young. She urges businesses to store old records off-site and adhere to the auto and retail industries' practice of "just-in-time" delivery for most supplies. With what's left, Young says to think vertical, storing items in cabinets above cubicles or on open shelves seven feet high. Be sure floor loads are adequate in storage areas.
Acoustics and lighting. Loud voices, glass walls and open-space work areas all contribute to worker distraction and lack of privacy in telephone conversations. Raise cubicle partitions a few inches and add wall insulation to muffle sounds. Task lighting (low-wattage fluorescent or halogen lamps that direct light to a specific work area) saves on electricity and helps prevent glare-induced eye strain.
Consider safety and disability. For security, protect workers, equipment and information with old-fashioned locks and identification tags or a sophisticated electronic system. To determine Americans with Disability Act accessibility requirements, check with the Florida Department of Community Affairs (904/488-8466) or the Southeast Disability & Business Technical Assistance Center in Atlanta (800/949-4232).
Remember, space planning isn't decorating. Workers are more comfortable and businesses more efficient in well-designed, secure offices.
Small Biz Briefs
Though Washington's budget battles continue, lawmakers funded the Small Business Administration loan programs through September 1996. Other SBA programs are operating on interim funding that will expire on March 15.
The SBA's 7(a) General Business Loan Guaranty program, which includes the agency's popular Low Doc loans, received $10.9 billion, up from $7.8 billion in fiscal 1995.
A second program, 504 Certified Development Company Loans, received authorization for a record $2.65 billion. Small businesses use 504 loans to finance fixed assets such as land, buildings, construction and renovation. Finally, the Surety Bond Guaranty program, used by small business owners who must post bonds insuring against default, received $1.7 billion.
The University of West Florida Small Business Development Center will hire an executive director this spring to succeed Donald M. Clause, who retired after 17 years with the center. Its interim leader is Martha Cobb.
