Before you Sign That Lease

There are countless items that business owners should consider before signing a lease and starting a business, (like making sure the revenues and cash flow support it!) but here are six details to be aware of in negotiating a commercial space.

Read and understand the entire lease.

A lease is a legal document and what you don’t know will hurt, ask for clarification on everything you don’t understand. Once signed, the written word is binding, verbal statements are not.

A typical commercial lease may have almost 40 sections, not including any riders or addendum's, and it can be difficult to comprehend what the terms and different options mean. Taking the time to read through and analyze a prospective lease can save you time and money in the long run. It may also allow you to add in items that clarify and give you better control of your costs.

Obtaining legal counsel now may save stress and much bigger legal costs later.

Everything is negotiable.

It is important to understand that all things can be negotiable (within reason): rent, base rent, square footage, improvements, lighting, signage, lease terms, options, deposits, possession dates, and more. You may have more success if you look for a few important items that influence your costs.

The full cost of rent, maintenance, parking, utilities must fit within your budget. Above all...if you have not developed a cash flow budget, balance sheet and projections, do not sign anything until you are sure that the business revenues can support a lease payment.

Seek to limit your share of Triple Net costs including: Common area maintenance charges; Property taxes passed through; and Insurance on the overall building and property that is owned by the landlord including common area liability insurance.

Define all proposed tenant improvements, as well as square footage (usable is typically less than actual) be certain that all uses common to your business are allowed. Tenant improvements that are professionally installed, such as lighting, walls, plumbing, built in equipment, typically become the property of the landlord. However, you may be required to remove and restore the space at your expense upon termination of the lease.

Make certain that all of your business activities are specifically allowed. Understand that some uses can be prohibited because another tenant has a non-compete clause.

Get an exit clause in case the business fails. Consider short term leases, with options to renew so you have options if your business s outgrows the space or the economy gets worse.

Be objective.

The space is available, but may not be the correct location for your business. A tenant can be so in love with a space that they fail to see fatal flaws in the location or costly extras. There will always be another option. It might not be exactly what you are looking for, but there is always another choice. Pause and consider, if this site is so good, what happened to the previous tenant?

Business Succession - Just Closing Is Not A Plan.

You have invested a lot into your business. You invested sweat, cash, worry, hard work, and more cash, what happens to your investment when you are ready to retire? A succession plan is a predetermined strategy specifying the best way to exit your business. Preserving your legacy and your retirement income may depend on identifying how ownership will be transferred. A succession plan should also identify what will happen to your business if you have an accident or serious illness. Will your business just close or is there someone who can operate the business until you return?

Plan Ahead

If you are approaching retirement start planning at least three years ahead. It takes time to select and train a successor. Of if you sell find a buyer who is capable of continuing operations and hence qualify for financing. Preparing key customers and suppliers to work with your successor will protect sales revenues and vendor terms. Address family issues and expectations to provide an orderly transition. Prepare for your retirement financial needs.

Planning to Start a Business

This past year I worked with more than 30 people who want to start a business or buy their first business. Statistically, only 1 in 4 new businesses will still be in business in two years. Those who survive typically have a well prepared business plan, understanding the true market and sales potential, starting with enough of their own money, and dogged determination to survive long hours and a demanding lifestyle.

A good business plan is short and focused on conclusions reached from researching the basics of market place conditions, identifying the real customers, verifying that there are enough customers, a good estimate of startup costs and operating budget for the first year. Sales projections need to be supported with solid assumptions about the market.

Planning to Staying in Business

 “Good fortune is what happens when opportunity meets with planning.” Thomas Alva Edison

The action word in Edison’s statement is “planning” an activity not the end result. One reason staying in business is hard is lack of adequate preparation. Businesses that lack the resources and knowledge to execute their business model and seize the opportunity quickly run out of money. The act of planning means you have though through the desired project as well as thought about what could go wrong. Unexpected events often become death traps for new business ideas. Likewise, as Edison points out lack of information can result in missed opportunities.

Common Financial Ratios for Year End Reviews

Use financial ratios to compare year to year performance. Ratios will indicate a trend of better or worse than last year. Calculating these ratios will require a Balance Sheet and a Profit and Loss statement


BALANCE SHEET RATIOS (Liquidity)

• Current Ratio (Solvency) divide Current Assets by Current Liabilities to measure dollars of assets per dollar of debt shows ability to pay debts.
• Quick Ratio (Liquidity) divide  Cash plus Accounts Receivable by Current Liabilities to measure CASH available to pay debts show ability to quickly pay debts.
• Debt-to Worth (Safety) divide Total Liabilities by Net Worth to measure Dollars of Liabilities per dollar of net worth
• Working Capital divide Current Assets minus Current Liabilities by Sales to measure ability to pay short term debt
• Cash divide Cash plus equivalents by Total Assets to measure CASH as a percent of total assets

INCOME STATEMENT RATIOS (Profitability)

Health Care Reform

Here is a useful article entitled “After the Supreme Court’s Health Care Reform Decision:  What Employers Now Need To Do” supplied by the law firm of Schwabe, Williamson & Wyatt:  http://www.schwabe.com/Articles/WhatEmployersNowNeedToDo_July2012.pdf

Perhaps it will answer some questions.

Small Business Advisory: Crowdfunding

Posted by the North American Securities Administrators Association, June, 2012


On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, a series of legislative provisions intended to facilitate capital formation in the United States. Part of this legislation included the CROWDFUND Act, which makes significant changes in current federal and state securities laws.


The CROWDFUND Act will allow entrepreneurs to raise capital by offering to sell interests in their businesses over the Internet. Under the CROWDFUND Act, a small business will be allowed to raise $1 million in a 12-month period by selling its securities to investors without registering that offering with federal or state securities regulators. However, the Act places limitations on how and to whom a small business can sell its securities. The Act directed the Securities and Exchange Commission to adopt rules within 270 days to implement a new exemption to allow securities sales through crowdfunding.