Having the right facility for your business is a major key to any rental company’s success. It also can be tricky when you consider growth and financial metrics of your business.
Facility rent expense, as noted in other posts and articles on this website, should ideally be no more than 5% of your total revenues; 7% tops. The problem is, it is a long term fixed cost that really can’t be managed each period like many other costs can.
Now is a great time to get to your landlord’s bottom dollar on your facility. Renegotiating your lease even mid-term is something we are seeing more and more of and we believe it is wise to do so. If your landlord won’t budge, your leverage is to move at the termination of the end of the current lease period (and not renew or take advantage of any options). Landlords like long-term tenants. Happy tenants usually are long-term tenants. Your landlord might believe if he or she doesn’t renegotiate the current lease that you could break the lease or go out of business. You have more leverage now that you ever had before.
Even if your lease is favorable and you feel like you are getting a fair shake, is it really the right facility for your business? Perhaps it is now, but will it be in 2, 5 or 10 years? Are you intent on being a single location rental company? Do you have room for adequate growth in your facility for future needs? If so, is your facility rent expense metric (5% of revenue) out of line now because you’re aiming for growth?
Good rental operators are always looking at the future. This includes facility and infrastructure issues that may be a few years down the road. It’s not cheap to relocate. We all know that. But, it could be more expensive not to move. After all, you’re either moving forward or moving backward; you’re never really in neutral. Not for long anyway. Are you going to downsize by selling off or separating a division therefore opening up room for growth? What is that going to do to your rent expense metric in the short run? There are several factors to consider regarding the long term plan for your company.
Keep an eye out for other facilities that would work for you. Get educated on asking prices—both for rent and for sale. Zoning, infrastructure and many other issues must be taken into account. Can you grow your facility with adjacent available space? Can you get an option to lease the warehouse on the other side of the wall? Are there two acres next to your facility for lease or sale?
If your lease is set to expire in a year or so, you need to ask yourself: Should I stay or should I go? It’s tricky, but a necessary decision that you’ll have to make at one point or another so do all of your homework!