Choosing a Location for Your Business

March 27, 2013

image Many decision factors go into choosing a location to lease or purchase for your business. If your business is dependent on walk-in traffic, such as with a retail business, the importance of location is obvious. Service businesses are usually less location-dependent, but location can play a critical role in creating the right business environment and retaining employees.

Be sure to consider all the factors when leasing space, not just the level of monthly rent, such as:

  • Convenient parking is important, especially if employees drive to work or if clients come to your office for meetings.
  • What types of communication services are available? Many businesses find that high-speed data access lines are crucial to their business. Some buildings are already pre-wired for high-speed communications with T-1 phone lines. Other types of high-speed data communication lines, such as DSL service and even modem service through cable TV, are not available in all areas.
  • You should also consider the level of traffic congestion in the area. As most of us are aware, sitting in traffic can be a huge waste of time.
  • Amenities in the area are another factor to consider. Are there local restaurants or other facilities that can be used for meetings or luncheons?

Terms of a Lease
Below are some common items to review when a lease is being negotiated. Understanding the terms of a lease can make the negotiation process easier for both you and the landlord. Settling on the terms of the lease does not have to be a contentious process. Remember that landlords are also in the business to make money.

Depending on your level of comfort with the entire leasing process, you may want to have your attorney review the lease before you sign it.

  1. Nature and duration of the lease. Be sure to understand the term of the lease and the mechanics of any renewal options. Also be sure to completely understand when you are entitled to possession and use of the property.
  2. Rent. In the lease contract, make sure it is clear when the rent is due and how it is to be paid, along with the actual amount to be paid. You should also be sure to understand if there is any "pass-through" of increased property taxes or maintenance costs.
  3. Competition. If the space is being used for retail purposes, such as in a mall or strip shopping center, are there any restrictions on the landlord's ability to lease to your competitors. What are your remedies if a competitor moves in close-by?
  4. Subletting. Do you have the right to sub-lease space if you find you don't need the space within the duration of the lease?
  5. Physical condition. You may want the landlord to make certain improvements before you move in. This may include changing walls or electrical connections. What will be the general condition of the space when you move in and what condition must you leave it in when you move out?
  6. Landlord's solvency. Will the landlord be able to deliver on all of his/her obligations for maintenance and up-keep? The real estate market can be cyclical and some protections in the lease for your rights may be attractive.
  7. Improvements. You may wish to make improvements to your space during your lease. You may need additional offices or just want new carpet. Be sure your lease allows you to make the improvements and try to get compensated for these improvements at the termination of your lease. Need financing for a build-out or improvements? Contact your Home Federal Banker for financing options.

Leasing vs. Purchasing
At some point a business may consider whether to continue leasing or to purchase a building. Leasing has its advantages and disadvantages depending on your business situation. A lease provides smaller up-front cash outlay and shorter lead-time to take possession. Although, purely leasing doesn’t build up equity and space modifications can be limited by the landlord.

The Home Federal Business Banking Team is here to help assess the potential of purchasing or building by identifying financing options that fit your business. Contact us today to get started.

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