One of the biggest expenses in running a business is rent. I had paid rent before so I thought I knew what I was doing. There are similarities, but there are also significant differences. But first let’s look at the expenses. You have your basic income statement (with my 2015 numbers)
Revenue | ||
Sales | $333,742 | |
Expenses | ||
Cost of Sales | $150,975 | |
Operating Expenses | $117,369 | |
Non-Operating Expenses | $61,732 | |
Total Expenses | $330,076 | |
Total Income | $3,665 |
Now here is the break down of Operating Expenses where I find Rent to be the largest component.
Operating Expenses | ||
Rent | $54,818 | |
Payroll | $42,575 | |
Utilities | $7,581 | |
Car | $5,032 | |
Advertising | $3,172 | |
General Supplies | $2,787 | |
Meals and Travel | $1,122 | |
Other | $277 | |
Total Expenses | $117,369 |
This is not meant to be a financial analytic piece. I am showing these numbers just to show how much rent is compared to other expenses. Rent is huge. Now here are some things I did not know.
I went to the offices of the landlord. I thought it was going to be pretty straight forward. They tell me the rent is x and I sign the lease. The franchise office wanted me to be approved by the landlord. I didn’t understand all of the implications of that. There wasn’t an issue so I didn’t dig into the details. The landlord was a medium size outfit and everyone I met with seemed really nice. I can’t remember the details of what information they wanted from me. I think they checked my credit. I am sure they just wanted to know that I would pay. I signed a lease for 5 years. I didn’t read it then. I was just reading it now. Here is the link for the lease Property Lease
Now I have signed multi-million dollar contracts without reading them. My belief is that the contract is a sign of trust. I want to pay my rent and they want me to pay the rent. If there are “gotchas” in the contract then there is a problem of trust that no contract will solve. Having said that, I did not know what the needs of a store like this would be. I have also done things that are less than trustworthy, relying on the contract to justify my actions.
The first thing that the contract states that I did not understand fully was the payment of triple net charges. This is not universal in all contracts, but it is not unusual either. What this means is that there is some common area maintenance that I have to pay for. These are commonly referred to as CAM charges.
You see this nice guy trimming the trees here? I am paying for that. Of course I like the idea of someone keeping the place nice and me not having to worry about it. When I was “chatting” with the landlords in our initial meeting they said the charges were about $200 – $300 per month. Last month it was $1300. And here is the kicker. First they can do anything they want. Repave the parking lot, sure. Add security guards, yep. Secondly they add 15% on top of whatever the charges are for their administration. No motive to keep those costs down. I am not upset about it, just surprised.
The other charge that is stated in the lease is that I will pay all insurance and taxes on the property. The real problem is that these come in big chunks. They are not spread out over the year. So in August I will get an additional bill for a couple of thousands of dollars. That is why my rent is really about $4500 per month. Could I have negotiated a better deal. I doubt it. So why worry about it.
But there is more. Some of which the Landlord has the advantage and some which I do. Generally I think the landlord just wants his money, does not want to be bothered either by me or any other tenants complaining about me. For example there is a minor part of the lease where if an employee parks in “non designated employee parking” that they can be charged $10 per day. That has never happened. But here are some other things that can be kind of important.
1) The lease does not mention anything about the limit of UHaul trucks I can have. There was an oral agreement that I would have only 4 trucks, because that has been the standard operating of the previous owner. I have 17 trucks and will have as many as 30. The lease very specifically states that no oral agreements are valid. I think where the previous owners ran into problems is that the city of Long Beach charges a yearly business license based on the number of trucks. The first time I renewed that license (which in violation of city code I do not display) I upped the count to 10 trucks. I should have upped it even more this go around, but the cost made me uncomfortable. If I remember right the cost of 10 trucks was $1,000. Next year I am going to up it to 20 trucks. The lease also says that all of the common area is for all. None of the other tenants have claim to any part of the common area. That is a big win for me.
2) The lease says that I am responsible for things like heating and air conditioner. This is where our franchise choked. Our air conditioner went out. The repairmen said that it was over 30 years old and was obviously no long for life. The franchise should have warned me to have it checked and/or had me place in the lease that the landlord would share in the cost. As it stands we are going to have to bite the bullet this summer. That is going to cost us about $5000. Win for the landlord
3) The lease says that I will have insurance. I didn’t know this. I still don’t know what this is exactly. The franchise and the landlord seem to go through their files about once a year and ask for proof of insurance. I don’t have any. It seems they forget after asking and they never bring it up again. That does not motivate me to figure it out, so I still don’t have any.
4) When I moved in Greg hands me the keys to a shed out back. A little ways away from the store actually. It is not in the lease. It is now filled with stuff. I have no idea what the total story with that is. I have the keys so I use it. Since then the grocery outlet store next to us said that they have a lot of storage space that they do not use. So I am not feeling really concerned. If the landlord cracked down and asked us to get our stuff out or pay more I would be in a world of hurt. My sister moved to Australia and moved all of her stuff in there. It is packed. I’ll take a picture some day.
That is about it. Since we have moved in the Arby’s has become a Starbucks. Thank you Landlord. The Fresh and Easy has become a Grocery Outlet. Thanks again. The security guards have reduced the vagrant population and the problems they have caused. thank you. I have a lot of risks and worries. One of them is that the Landlord decides to get rid of me. He has all of the control. I will have to seriously plan for this during our last year of our lease. There are some little things in the lease like I can’t operate a similar business within 3 miles of this store. Why would they have that in there? What if I want to buy the UPS store across the street? What if I want to move the business across the street? Are these things to really worry about? I don’t know. I didn’t know what I didn’t know and I still don’t know.