How do new shops pay for their lease space?

[uRabbit]

My partner and I are in the planning stages of our future coffee shops and roastery. Ideally, both would be in the same space. Accounting for this, a 1,500 sq. ft. space might be workable, but it really depends on the space.

Looking at real estate in tons of cities (Seattle, Boulder, Boise, Austin, etc.), and I'm seeing a trend — they're all expensive. Around $28/sq. ft./yr would be the average. Around $8 for NNN. $36/sq. ft./yr. $54,000/yr for a 1,500 sq. ft. space. $4,500/mo (which is quite low, but this is all napkin math). Let's add $800 for utilities. $5,300/mo.

Let's divide that by the average ticket of $5.50 that I've seen in the shops I've worked at in Seattle. 963 sales each month just to pay for the space. Divide by 26 for number of days open each month. 37 sales each day to pay for the space. Space lease and utilities should be ~10% of your gross, so let's divide by .10. This comes out to 370 sales of $5.50 each day. $2,035. Definitely not unreasonable. However, the busiest shop I've worked in here in Seattle had good days of $1,500, with the average being $1,100.

Obviously, you're supposed to be able to operate in the red for the first two years. But this red?!

What say you, folks?

edit: Here is an example listing. $38/sq.ft/yr. $70,300/yr just for lease (not including NNN and utilities). $5,858/month. 1,065 visits of $5.50 average transaction. $58,580/mo to make a profit. That's 585,800 visits per month of average $5.50 transaction. Am I missing something?

 

[Musicphan]

uRabbit -

1500 sq. ft for a both may be tight.. it really depends on your model. If your roasting for in-house only you probably are fine (but still tight). If your going to focus on a wholesale business that's probably to small (anything is possible of course). I sell online/farmers market/wholesale and I have a 1100 sq. ft. Its roomy for now... but as my volume is increasing the amount of storage I need for green/packaging/etc is growing as well. I have about 700 sq ft setup for roasting / green storage / packaging etc. The front half of my shop is more of a lab.. espresso machine, grinders, brewers, cupping table. At least that will give you an idea of sq footage needs.

Regarding real estate - mid/high 20's is probably pretty accurate... same with your NNN estimates. Take a look at loopnet.com for commercial listings. I decided to rent a commercial space for my roasting operation (as do most roasters in my city which have a decent wholesale volume). Its much more economical... probably half the price or greater. My gross lease in my spot is about $10/sq vs. a retail location would be $25-40 sq.

Good luck!

 

[John P]

Musicphan's advice is very sound.

What I would add would be this:

1) Understand how to properly negotiate a lease. This is NOT done by the agent showing the property. And every price is too high. I would start with offering 15% less and settle on 10 to 12 % less. That's just for starters.

2) Don't fall in love with a property. It can't love you back, and there is always another... an often better one you haven't found yet.

And this last point might not seem to be helpful, but it is probably the most helpful advice I can give :

3) Who says you need to be in the red for 2 years? 1 year? 6 months? You DO need to prepare, but... If you give yourself a 18 month cushion, then all decisions will be made consciously or subconsciously with that "safety net". We gave ourselves a 3 month cushion which we never exhausted for 9 months. Mind you we only took an owner's draw for necessary living expenses for our first two years, but that's do to proper planning. My point is that by changing you mindset about knowing success rather than hoping for success will dramatically change how you think, the actions you take, and the results therein.

But DO prepare. EVERYTHING is about preparation -- whether it's knowledge of craft, of business, of industry, of leasing, of location, of finances, etc. ALL of that is preparation. We drew up the papers to form our company in September 0f 2001. We spent the next 3 years traveling to trade shows and coffeeshops and nearly 2 years looking for and negotiating on properties. We negotiated on four different properties, one of which we were 45 minutes away from meeting to sign for... but they wouldn't grant a condition we were asking for so we pulled out. We signed a lease on our location in January of 2004 and opened in late July that year.

Be patient. The idea is to know that you are better than A, B, and C. Not think, not hope.. but to know. And when your doors open, you can hit the ground running. Too many people try to go from idea to lease to open in 6 months or less. Not a realistic plan. Not a plan for success.

 

[Musicphan]

And to add to John's advice... even if you have a 'Buyer's Agent' representing you... they are still coin operated. I.E. - they are after the commission and they have their best interest in mind. The better ones will help you find the right location but understand you are in control.

 

[chast]

Didn't see anything mentioned about employees, liability insurance, payroll taxes, Workman's comp local fees and permits especially for your health dept. like John said staying In The red is not realistic for a time frame but the Feds give you 5 years which can be a plus, for you will not be taking any big money home even after working 100 hours a week. Are you going to incorporate? LC, S Corp or partnership. Now you have legal fees. IMO 800 per month is really low for utilities when you consider gas for heat and the roaster and ac in the hot months. I always asked for some free setup time and usually get a month or two. I will not pay triple net because it can become a real rip off. Hopefully you have enough cash aside to maintain your current Living situation. Deposits and advertising can add up real quick. Set a budget for advertising because you will be hounded by every event that is going on. 5800.00 a month is a big nut to crack when you first open. The first thing I would do is check with local departments and see if they are going to give you a hassle with the roaster. I have know some who have been tied up for almost a year trying to get their roaster installed and signed off while paying the monthly lease payment. Time frame for buildouts and paying contractors to finish on time is another obstacle. 50k is a blink in some cases still while paying lease payments without being open
it is a great adventure setting up and making it all become a reality!
dont give up if it is really what you want

 

[wmark]

If planning for the long run, buy a place..........at least you will own something