Why start-ups struggle to secure their first business premises
Written by Panikkos Euripides MRICS, Director of Windsor Grange
As the start-up revolution shows no sign of slowing down, more and more budding entrepreneurs are finding it tough to secure their first business premises. It can take a good three to five months when you know what you are doing, but for amateurs, this can be more like 6-12 months – or never. Let’s explore some of the main challenges that a start-up will face:
Security – Landlords want peace of mind and ideally a backup plan in the form of a rent deposit and/or Personal Guarantee. A start-up is a high-risk proposition, as they will typically have no security or track record.
Insufficient capital – A common oversight is not factoring in all the costs. Most people will know what the annual rent will be, but do not realise that it will usually be due every three months in advance. In addition, is VAT applicable to the rent? If so, that’s an additional 20% on top.
Other costs include, the rent deposit – which for a start-up is typically anything from 3-9 months -, Business Rates, building’s insurance, service charge, fit out costs, furniture/equipment, setting up utilities and ongoing expenses.
Track record or experience – Whilst a start-up is often born out of a natural progression, built on a person’s prior industry knowledge, it is often the case that there is no real experience at all. This makes it very difficult for a landlord to ‘buy in’ to the concept and person fronting the enterprise.
Lack of property knowledge – Landlord’s generally employ a commercial property agent to market the property and handle the negotiations. The agent will have a certain degree of patience when dealing with newbies, but do not be fooled, if you show a lack of experience or are unrepresented by a professional, they will see you coming a mile away and inevitably you will end up at the bottom of the priority list. Agents will prefer to deal with another professional, as this significantly reduces the risk of the transaction falling through.
Positioning yourself for success – Try the following, in order to get yourself towards the top of the agent’s ‘call back’ list?
- Create a ‘landlord pack’ or presentation. You want the agent and landlord to be excited about your proposition. What’s your USP?
- Crunch your numbers. Be confident in what you are looking for and try not to ask trivial questions when viewing properties. If you sound nervous, this will ring alarm bells for the agent and they will lose confidence in you.
- Ideally have a professional leasing surveyor/agent to represent you in the negotiations. They will be able to speak the same property language and will negotiate the best terms without pushing too hard so as you risk losing the right property. Remember that the landlord’s agent is acting in the best interest of his client and not you. The value that your own professional agent should provide will more than cover the expense.
- Have your solicitor and other professionals on standby so that when you’re ready to make a formal offer, you can provide their contact details at the same time, thus giving the landlord’s agent confidence that you will complete the transaction. Be aware that the solicitor and leasing surveyor both play separate but vital roles.