News Type: Press Mentions

Cash flow woes can kill a company, but there are a few surprising opportunities to negotiate a bigger cushion for your small business.

The path to success contains lots of twists and turns. As Albert Einstein said, “A person who never made a mistake never tried anything new.” But you’re not doomed to stumble every time.

Once you take those initial ideas out of your head and put them on paper, sticking to a plan is the key to success — and the key to eliminating chaos. By developing a strategy, you can avoid becoming another failed business statistic.

But, as they say, timing is everything. And if you time your big moves incorrectly, even the best-laid plans can fall apart.

The classic adage in real estate is “location, location, location.”  However, for small medical practices looking to lease, renew or purchase, it can be a little more complicated.

Leases and lease renewals are not typically conducted on a level playing field. After all, the landlord is in the real estate business and most business owners are not. By planning ahead and having professional representation, it is possible to negotiate a lower lease rate and receive a substantial tenant improvement allowance and free rent.

Grow Minnesota! Partnership staff visited with Zachary Lee, a
broker with CARR Healthcare Realty, and he shared the following
insights. CARR specializes in serving health care professionals in
the greater Twin Cities area with their office space needs.

For most healthcare practices, real estate is the second-highest expense behind payroll. The difference between a properly or poorly negotiated transaction can benefit or cost a practice tens to hundreds of thousands of dollars over a ten year period. Additionally, you typically get only one opportunity every 5 to 10 years to take advantage of a new negotiation. With this much at stake, every transaction is paramount to maximizing profitability.

If you own a business, you most likely have a commercial office space.

That office carries with it many expenses: the most obvious is the monthly rent or mortgage. With an office space also comes staff and payroll. These two items are not only needed for business operations, they are also two of the highest expenses for most businesses. That being the case, only one of them is really negotiable. You may decide to cut staff, but when it comes to payroll, you either pay people what they are valued at, or they go somewhere that will pay them.

Real estate, however, is 100% negotiable. You can decide if you lease or own. You can determine the size, location, and amenities your space will offer. You can choose to be in a stand-alone or multi-tenant building. You can determine the length of lease, concessions you ask for, economic terms, business terms, etc.

80% of business owners still take a “do-it-yourself” approach to these crucial negotiations and site selection process.  There are several reasons why approaching your commercial real estate transaction without representation will likely cost you a significant amount of time and money.

Time
The average commercial real estate transaction takes dozens of hours to complete.

Money
The average business loses tens of thousands of dollars in this “do-it-yourself” approach.

Experience
If you don’t have an agent involved to exclusively represent you in your transaction, then there is no real estate expert who has a fiduciary responsibility to protect your interests.

Knowledge
Knowledge is the most important part of representation. We live in a world where “knowledge” is at our fingertips. The problem is, the knowledge that is available is often a cheap knockoff of the real thing.

It’s time to renew your lease. Are you ready to negotiate? If you’re like many practice owners, the answer is no. “Lease renewals are the No. 1 transaction in all of commercial real estate—for every new lease, there are 20 or 30 lease renewals happening—but it is the transaction that often receives the least amount of attention,” says Colin Carr, founder and CEO of CARR Healthcare, a nationwide commercial tenant brokerage based in Denver.

For most practices, rent is the second largest expense, behind payroll. And the common practice of adjusting staff levels to reflect a changing business environment simply won’t work with lease payments. Once you sign on the bottom line, you are stuck with those costs for the life of the lease.

“You get one crack at your lease every seven or 10 years. Make a mistake, and it could cost you a lot of money; conversely, if you capitalize on the opportunity, it could save your practice tens to hundreds of thousands of dollars,” says Carr.

So how can you get the best deal? Follow these steps.

Owning a home can create one of your largest assets and is typically seen as a relatively safe investment opportunity. Conventional wisdom would say the same is true for veterinary real estate as there are legitimate benefits to owning, including paying down the loan principal and building equity, receiving loan interest and property tax deductions, and more. When running the numbers for owning, leasing is often labeled as “throwing money away” compared to building equity through ownership.

While these and other reasons make ownership compelling, there are many reasons why leasing your space might be a better decision than owning. This is especially true when considering the stage of your career, your ideal practice location, and the quality of building you can afford.