Opening a retail storefront? Things to consider…
Opening a retail storefront is a risky venture. Here’s a short list of things to consider – not all pleasant – but it’s best to go in with your eyes open.
• You’ll have less free time.
• You’ll have more responsibility.
• Your business won’t be as private as it once was.
• Your employees will cost you at least 30% more than you agree to pay them.
• You’ll make less money on higher sales (lower margins).
• You’ll have increased exposure to business risks.
• You might be obligated to be open hours you didn’t anticipate.
• You might not have the foot traffic you were promised or anticipated.
• All of your basic services, such as phone, Internet and utilities, will be more expensive.
• Depending on how you define success, a retail storefront might not be your best answer.
Real Estate Terms
As you begin your search for the perfect location, you’ll be dealing with real estate agents who might be speaking in a language completely foreign to you. The best advice is to have an attorney review any lease before you sign, but listed here are a few terms you might hear and should be aware of:
• Base rent: the minimum monthly rent, usually computed on a square-foot-per-year basis, due under the lease
• Common area maintenance (CAM): an additional, annual charge often assessed to tenants for maintenance of the property’s common area, such as its entryways, hallways or bathrooms
• Escalation: the mechanism in a lease that increases the rent, usually annually
• Gross lease: commonly specifies one rental amount inclusive of rent, taxes, utilities or maintenance, associated with the rental of a property
• Load factor: the amount of square footage in a lease, in addition to a tenant’s usable square footage, which represents a tenant’s pro rata share of the building’s common area/s; can also be referred to as a percentage of a building’s rentable square feet
• Pass-through expense: an expense associated with tenancy in which the landlord “passes through” to the tenant certain increases in building operating expenses occurring after a base year in the lease
• Percentage rent: provides for a rent to be paid as a percentage of retail sales, usually quarterly or annually
• Triple net: generally refers to the requirement for the lessee to pay for its share of the property’s taxes, insurance and operating expenses; these are usually in addition to any CAM fees