September 28, 2012 Inner Circle en_US A long-term lease is not always the best option. We explain a number of topics that you should think about before you decide to sign your lease. Should Your Business Sign a Long-Term Lease?
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Should Your Business Sign a Long-Term Lease?

By Angie Mohr September 28, 2012

When you first start your business, and again when you expand, one of the decisions you must make is where to set up shop. If you decide to rent commercial office or warehouse space, you’ll want to think about both the current state of your business and your plans for future growth.

After you find the perfect spot, you will be presented with a lease, which can cover a period of anywhere from 1 to 10 years. Once you sign on the dotted line, you will be bound to this contract for its entire term, which makes it essential that you determine how long you want to be in that space before signing.

Here are three topics to consider before you commit to a lease:

1. Growth projections

When leasing an office, think about whether the space will still be large enough in a few years for your operation to expand as you increase your employee base. If you are a first-time entrepreneur, your ability to project your company’s growth may be underdeveloped, and you could find yourself stuck in an office that is bursting at the seams. To minimize this risk, negotiate a shorter-term lease or at least ensure that you have the contractual ability to sublease your space if you need to move into a larger one. Commercial buildings with many different-sized units may also give you more flexibility to move in the future.

2. Proximity to customer base

“Location, location, location” remains one of the most important determinants of success for most businesses. Your office location can either make or break your business: If your customers or clients come to your building, it must be central and accessible. If you are running a bakery, locating it on the edge of the city in an industrial mall may not be the wisest move. Unfortunately, you won’t know for sure that you have chosen the right spot until you have been there awhile and have some experience under your belt. If you’ve signed a five-year lease, and you realize after six months that your location is simply not drawing the crowds in, you may be stuck with a very expensive albatross around your neck. On the other hand, if it’s the perfect location, you want to ensure that you lease it for as long as possible. One way to hedge your bets is to sign a one- or two-year lease with a renewal clause, allowing you to extend the lease at a predetermined price.

3. Landlord

In the perfect leasing situation, you see your landlord rarely, perhaps only to repair and maintain the building and pick up rent checks. However, not all landlords are so easy to get along with — and you run the risk of choosing a bad apple. If your landlord doesn’t keep the property up or harasses you or your employees, it can have a negative impact on your business. Find out as much as you can about your landlord before you sign the lease, including whether he or she owns other buildings (or has any in foreclosure) and how other tenants feel about their leasing experience. If it appears that your landlord is hard to get along with or has financial troubles, start looking at other commercial spaces.

When it comes to signing a lease, every business has different needs. New and rapidly changing companies should ensure that they don’t get locked into a lease that won’t serve them well in the long run.

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Angie Mohr is a Chartered Accountant, Certified Management Accountant and management consultant. She has worked with individuals, celebrities and businesses of all sizes in helping to create wealth and financial success. Angie is also the author of the "Numbers 101 for Small Business" series of books that cover every stage of a company's life, from startup to exit. The Numbers 101 books have been translated into several languages and are sold worldwide. Read more