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Businesses often face changes in their commercial leases as inflation and other economic factors make their impact.
For brick-and-mortar businesses, higher leases mean lower profits. If your business is dealing with increases or changes in your commercial lease, here are a few ideas to consider:
(Re)negotiate your lease
Language in your lease can forecast how and when your rent will increase. Fixed rent escalation is an annual increase of a predetermined percent or flat amount. Stepped increases add specific amounts to your lease at pre-scheduled times. Both should be clearly stated in your lease and are not market-dependent.
Pass-through escalations mean that if a landlord’s costs increase—utilities, for example—they will pass that cost on to you. Indexed escalations mean that your rent will increase at the same rate as the Consumer Price Index if inflation rises. These types of rent increases often occur when other expenses—like the cost of materials—are also rising. This can create a terrible squeeze for businesses in industries like Food or Construction.
While some kind of increase might be inevitable right now, advocate for a rate escalation type that works best for you.
Find a cheaper spot
Online sites can make it easy to browse commercial listings. Relocating can sound like a good move, especially when you find a lower lease offering free months. But what is the true cost of moving your business? There are direct costs like deposits and movers. But there can be indirect costs like disrupting customers, lower sales potential, and a smaller talent pool. Read this article by Entrepreneur.com when considering how your new location will help your business grow--or not.
Go virtual
Do you really need the commercial space at all? There’s no doubt that a brick-and-mortar location is great for your reputation and presence in your community. But the pandemic forced a new way of doing business that has its perks. Professional services of all sizes have moved to virtual work environments and can rent local meeting space by the day for team or client meetings. Online payment and meeting solutions make it easier than ever to do business virtually, no matter where your clients are. And diverting money from a fixed overhead cost (your lease) to a flexible operating cost (like marketing and advertising) may help you weather financial ups and downs while still filling your sales pipeline and staying in touch with customers.
BBB® is here to help you with every aspect of running your business. If you’re facing a rent increase or looking for a new commercial space, visit BBB.org for more business and industry tips.