Use a "Profit First" Mentality When Leasing Commercial Space

A great friend and client of mine was raving about a book she just read called Profit First. I encourage you to read it, as it covers the #1 killer of Small Businesses in the United States which is a lack of profit. The premise of this book is that contrary to what your Accountant or CPA may tell you, it is recommended that you build your business (and lifestyle) around taking your profit first. This will force you to make adjustments to your business in order to protect what is most important to you. I felt inspired by the premise of this book and thought about extending the focus into the arena of commercial real estate.

Your lease expense is the 2nd highest expense that your business will incur. Only the cost of HR supersedes this, for that reason the majority of business owners can literally live or die based on their real estate cost. As a 12 year veteran in commercial real estate, it amazes me how some owners will allow their real estate cost constantly grow without checking to make sure that their lease competitive with the market. Here are just a few questions you should ask yourself when considering a commercial lease space (new space, renewal, or relocation):

• Is my rent going up every year? If so, what are the market increases based on?
• Which properties in my desired area are offering incentives for new tenants?
• How much free rent could I get for my lease renewal (or relocation)
• What improvements could I use on my space that will help me be more efficient, increase revenue, quality of the workplace etc. 
• Is my area up or down compared to the Houston market? How does that effect my rent?

If you don’t have specificity to these basic questions, you are not alone. The majority of small business owners will take a look at an office, industrial, or retail lease and make a 3,5, or 7 year commitment to a landlord based on a little more than a quick search on the internet (probably loopnet) to find some options and then attempt to negotiate the lease based on the proposal they get from the landlord of choice.

This is how businesses die. When you take a Profit First mentality with your real estate expenses, you should be thinking about the following:

• How much free rent can I get on the front end of a lease?
• What is the most competitive rent I can negotiate for a space that fits my needs?
• Which landlord is going to give me the most flexible lease for my business?
• Which landlord is going to contribute the most (Tenant Improvements, Buildout, etc) so that I can save $$

The “Profit First” mentality is applied to Commercial Leasing by making sure that you ONLY pay what is absolutely necessary in rental cost while capturing all of the incentives that the market will bear. The great news about the Houston market is that for the majority of markets, it is a Tenant market. There are Class A Office buildings in Houston right now that are offering over 12 months of free rent on a multi year lease as well as below market rents. Currently I have two companies that are taking advantage of those deals that will save nearly $100k in real estate expenses. The money saved should go straight to your Profit to save and re-invest in your business, a rainy day, or put away for the future.  

Make a commitment today that when you consider your next renewal or relocation that you will adopt a “Profit First” approach when leasing office space for your business. We believe in this philosophy so much, we are giving away written, digital, and audio versions of “Profit First” to all our new clients this year.  Just message me and we will hook you up :).