The reality for most food and beverage operations leasing premises in Parramatta is that lease and rental costs will represent a significant part of their business overheads.
The right lease can be vital to a business’s profitability, and it can also be factored into the goodwill and value of any future sale. So, it makes sense to analyse your business model and investigate options available to you before you take the plunge. Here are some ideas and insights:
Crunch the numbers and develop a solid plan
Before you start searching for the perfect premises, consider the cost of rent related to your projected annual turnover. For most F&B businesses, labour and food cost can represent the two most significant expenses, each typically accounting for up to one-third of revenue. That leaves one-third of revenue to cover your lease payments – and taxes, fees, equipment hire or amortization, advertising and all other costs.
That is why not exceeding 6 to 8 percent of your total sales is recommended. For example, if your business plan calls for $500,000 in sales, your lease should ideally be $30,000 per year or $2500 per month.
Realise Business Advisors can help you put together a plan that is right for your business and your circumstances.
Search realistically
Arming yourself with a business plan and a budget will help you with your rental search.
Remember that you will have to balance the separate factors of location, lease cost and price of your offering to give your business the best chance of long-term success. Keep checking whether your chosen location is suitable for your business model and the service you offer. Determine if the area is already saturated with competition or whether it has great market potential.
Investigate the outlook for your search area
Check the location’s details thoroughly and do your best to gauge what may happen in the area before signing the lease. Run scenarios on some potential risks in the next 3/5/10 years that may affect your trade and, in turn, alter your business model.
Investigate different aspects of the location that could affect how you do business – this may include future rezoning, major DA plans, infrastructure, etc.
Review your shortlisted choices
Do some homework on your preferred premises and also your landlord. Consider whether you feel confident and comfortable with your future landlord. This is also an excellent time to get some feedback from the existing tenant if they are available.
Before you sign off on the lease arrangement
Ensure you understand what you are signing. Some essential areas to cover include understanding the lease’s length, the annual increases you can expect (5% is seen as standard), what you are solely responsible for and what you are collectively responsible for (you and your landlord).
You may be able to negotiate the terms with the landlord or the landlord’s agent. The help of a solicitor may enable you to achieve better terms.
Ending or exiting your lease
Leases are fixed contracts, but you do need to have an exit plan in place. The lease will end eventually in the normal course of business. It may end sooner, for unexpected reasons – good or bad.
Should you need to exit a lease for any reason, know your options. Here is an example:
Three years into his lease, restaurant owner Alex finds that the area’s competition is becoming too great. His business plan needs amending, as does his restaurant’s location to remain healthy and competitive.
Step 1: Before he contacts his Landlord, Alex performs financial and operational checks to ensure the move is needed.
Step 2: He contacts his Landlord with an explanation of why the move has become necessary.
Step 3: Negotiations will determine how next to proceed. A swift exit might be a business priority. In some cases (as during the pandemic), the landlord might offer a reduced rent period that makes it viable to continue the lease.
Step 4: On exiting the lease, both parties must meet the terms of their agreements.
It is important to remember that his landlord may not relinquish Alex from his lease, which could have significant consequences for Alex’s business.
How Realise Business Advisors can assist
Realise Business advisors can help individual businesses learn more about their financial and operational overheads and also explain how to run scenarios on different business locations. Contact Realise business today.
Also, register here for the upcoming free one-hour Transport for NSW sponsored Commercial Leasing Webinar to hear from a range of industry experts.
